RBA Decision Looms: What It Means for ASX Bank Shares

The Reserve Bank of Australia (RBA) will make its next decision on August 11, which could have significant implications for ASX bank shares. The RBA has left the cash rate unchanged in June, and most economists expect the same outcome this time around.

CommBank's economics team forecasts the cash rate to remain at 4.35% through 2026, with no cuts expected until 2027. A hold on interest rates would be a welcome relief for banks, as it would remove near-term uncertainty and avoid adding pressure to household budgets.

However, not everyone is bullish about the sector's prospects. Morgan Stanley has sell ratings on CBA, NAB, and Westpac shares, while Jefferies also holds a sell rating on CBA. Meanwhile, Citi has a buy rating on ANZ, which has been a favorite among analysts this year.

The bigger risk for banks is the potential impact of higher interest rates on mortgage exposure. Westpac carries the heaviest mortgage exposure among the major banks, with around 69% of its loan book in residential lending.