On Tuesday, August 6th at 12:30, the Reserve Bank of Australia will hold an interest rate decision. Most investment banks, including Australia and New Zealand, predict that the Reserve Bank of Australia will keep interest rates unchanged this time. However, Judo Bank believes that the possibility of interest rate hikes cannot be ruled out.

Most investment banks predict that the Reserve Bank of Australia will keep interest rates unchanged in August

According to market research, the median analyst estimate shows that the Reserve Bank of Australia is expected to keep interest rates unchanged at 4.35% until 2025 (consistent with the results of the July survey).

The Commonwealth Bank of Australia, National Australia Bank, ANZ Bank, and Western Pacific Bank all predict that the Reserve Bank of Australia will keep interest rates unchanged at its August meeting. So, when do these banks think interest rates will decrease?

Commonwealth Bank of Australia: cut interest rates by 25 basis points at its November 2024 meeting;

ANZ Bank: cut interest rates by 25 basis points at the February 2025 meeting;

National Australia Bank: cut interest rates by 25 basis points at the May 2025 meeting;

Western Pacific Bank: cut interest rates by 25 basis points at the November 2024 meeting;

Adam Boyton, Chief Economist of ANZ Bank, stated that the ending average inflation rate over the past two quarters was 0.94%, making it unlikely for the Reserve Bank of Australia to gain enough confidence in inflation to cut interest rates this year. He pointed out that with continuous strong growth in retail sales in May and June, coupled with evidence that consumer confidence is rising, the consumer industry may have already emerged from its weakest period.

Harry Murphy Cruise, an economist at Moody's Analytics, predicts that the Reserve Bank of Australia will keep interest rates unchanged at its August meeting, but believes that a rate cut will not occur "for some time". He said, "We expect the Reserve Bank of Australia to maintain interest rates at 4.35% until February next year

Bank of America stated that it expects the Reserve Bank of Australia to keep interest rates unchanged at 4.35% in this week's interest rate decision. Prior to this meeting, the second quarter inflation data released earlier this week showed that the potential inflation momentum had slowed down, albeit at a slow pace. Therefore, the bank expects the Reserve Bank of Australia to acknowledge that the current policy rate is reducing price pressure in the right direction.

However, slow progress towards returning to the target may mean that interest rates will remain unchanged for a period of time. The committee may also emphasize the relative weakness of the consumer sector. Bank of America expects no significant changes in the economic forecast of the Reserve Bank of Australia, but may make minor adjustments after the release of the second quarter data. Especially, Bank of America expects the Reserve Bank of Australia to slightly increase its year-on-year forecast for the year-end mean CPI, but it should still return to the target level by 2025. Given that the consumer sector continues to show relative weakness, it is expected that growth assumptions may also change slightly.

Raising interest rates in August is not entirely impossible

It is worth noting that it is not impossible for the Reserve Bank of Australia to raise interest rates in August. Renowned economist Warren Hogan from Judo Bank has previously stated that the Reserve Bank of Australia may raise interest rates twice this year, rather than once.

After the release of quarterly CPI data in June, he stated that the possibility of the Reserve Bank of Australia raising interest rates in August has decreased, but emphasized that the possibility of a rate hike cannot be ruled out.

He said, "The basic CPI data for the second quarter indicates that inflation in Australia has stopped falling and is currently hovering around 4%. The Reserve Bank of Australia's concerns about high domestic service sector inflation still exist

Gareth Aird, the head of economics at the Commonwealth Bank of Australia, stated that although the bank hopes the Reserve Bank of Australia will cut interest rates before Christmas this year, it cannot completely rule out the possibility of a rate hike in 2024.

Aird said, "We expect interest rates to remain unchanged in August, and the likelihood of any other outcome is low. We also expect that Reserve Bank of Australia President Brock will stick to the same script used at every press conference in 2024. That is to say, the board remains vigilant about potential inflationary risks while recognizing weak GDP growth and uncertain prospects

Market analyst Bob Mason believes that the short-term trend of AUD/USD depends on the Reserve Bank of Australia's interest rate decision this week and the US service sector PMI. If the Reserve Bank of Australia unexpectedly adopts a hawkish attitude and the US PMI data weakens, it may support the Australian dollar to rise to 0.67 against the US dollar. However, he warned that investors should remain vigilant as global economic uncertainty affects demand for AUD/USD.

AUD/USD daily chart