RBA Keeps Cash Rate at 4.35%, Warns of Hawkish Hold

Westpac chief economist Luci Ellis says the Reserve Bank of Australia's decision to hold the cash rate at 4.35% was widely anticipated, but the accompanying language suggests a shift in the bank's stance.

The RBA said it stands ready to raise rates only if upside risks to inflation materialise, which is narrower and more specific than the 'if needed' framing used in May.

According to Westpac, both headline and trimmed mean inflation have printed below the levels the RBA forecast in May, while the labour market and housing market have come in weaker than expected.

The bank notes that the initial pass through from higher energy prices arrived quickly and in significant size, but has since tapered off and undershot the RBA's expectations.

Westpac's base case remains an RBA hold running through to the middle of next year, though it characterises this as a hawkish hold rather than a clean signal that the tightening cycle has ended.