RBA Holds Hawkish Stance Amid Reasonable Chance of Rate Hike

The Reserve Bank of Australia (RBA) is likely to maintain its current interest rate at next week's monetary policy meeting, according to MFS Investment Management. While there is a 'reasonable' chance of a rate hike, the fund manager has stuck to its base case for a 'hawkish hold'. This means that the RBA will not increase interest rates but may signal future tightening.

Carl Ang, Fixed Income Research Analyst at MFS, said that underlying inflation measures are unlikely to satisfy the central bank. The Q2 CPI undershoot was relatively small, and disinflation is proceeding too gradually to rule out any tightening measures during the current cycle.

The RBA's target range for inflation is between 1-3 per cent, and several recent measures have come in around three per cent. Ang noted that trimmed mean inflation has printed 0.8% quarter-on-quarter for two consecutive quarters, easing only gently from around 1% in Q3 last year.

MFS' base case remains for no further rate hikes with scope for rate cuts from around mid-2027 onwards. The RBA will need to see the labour market crack or the pace of disinflation to step up before a cutting cycle can be reasonably expected.