RBA May End Rate Hike Cycle as Labour Market Concerns Grow

The Reserve Bank of Australia (RBA) may be nearing the end of its tightening cycle, according to Capital Economics. The bank's governor, Bullock, shares this view, stating that the current AI boom is doing more to boost demand than the economy's supply side.

Business surveys indicate that price pressures remain elevated, and the RBA will likely deliver another 25bp hike in September due to continued stickiness in underlying inflation. However, unlike markets, Capital Economics doubts further tightening will be necessary, as the labour market is not expected to be crushed by rate hikes.

RBA policymakers have signaled concerns about upside risks to inflation, and survey data show that firms still face elevated price pressures. A 25bp hike to 4.60% later this month is expected, but it may be the final increase in the tightening cycle.