The Reserve Bank of Australia's Monetary Policy Board voted to leave the cash rate unchanged at 4.35 per cent at its August meeting, extending the pause that began in June after three rate hikes earlier this year. The decision was widely expected, with the RBA judging monetary policy remains restrictive and the economy is slowing broadly as anticipated.

However, the Board expressed concern about upside risks to inflation and would be prepared to lift rates again if those risks materialise. Governor Michele Bullock told a parliamentary panel that Australian businesses are starting to 'bubble up' a view that elevated inflation is not coming back down below 3%.

While inflation has surprised on the downside recently, it remains too high. The RBA expects inflation to remain above the midpoint of its 2-3 per cent target range until late 2027, with underlying inflation now forecast to fall to 3.3 per cent by the end of 2026. Commonwealth Bank continues to expect the RBA to remain on hold through 2026, with two rate cuts forecast in 2027.