What the RBA's language says about the next move

The Reserve Bank of Australia (RBA) is likely to raise the cash rate further if inflation does not fall quickly. Current language suggests the bank is preparing the market for more tightening to avoid a long-term failure to hit its targets.

The current stance on interest rates

On 11 August 2026, the Reserve Bank of Australia kept the cash rate target at 4.35 per cent (RBA). While the rate did not change at that meeting, the bank described its current policy as "somewhat restrictive". This means the bank believes the current interest rate is high enough to start slowing down the economy and lowering prices.

However, the bank did not commit to keeping rates at this level. In its 11 August 2026 statement, the RBA said it would take any necessary actions to bring inflation back to its target. The bank explicitly noted that it might increase the cash rate target again if "upside risks" appear. In simple terms, if prices rise faster than the bank expects, it will raise interest rates again.

Inflation and growth forecasts

The RBA is struggling to see a clear path back to its inflation target. The target range for inflation is between 2 per cent and 3 per cent. On 11 August 2026, the RBA projected that inflation would not return to the middle of that range until late 2027 (RBA).

The bank's view on "underlying inflation"—which is a measure that removes volatile items like fruit and fuel to show the core trend—is even more cautious. In August 2026, the RBA forecast that underlying inflation would stay above 3 per cent until mid-2027. It does not expect this figure to hit the midpoint of the target range until 2028.

Economic growth is also expected to slow. The RBA stated in August 2026 that GDP growth (the total value of goods and services produced in the country) would be "subdued" throughout 2026 (RBA). The bank blamed three main factors for this slowdown:

• The recent increases in interest rates.
• A cooling housing market.
• High inflation.

As the economy slows, the RBA expects more people to look for work. In August 2026, the bank forecast that the unemployment rate would rise gradually to 4.8 per cent by the end of 2028.

The projected path for the cash rate

The RBA's internal projections suggest that the current rate is not the final destination. According to the RBA's central projection in August 2026, the cash rate is expected to increase by about 10 basis points (0.1 percentage points) over the remainder of 2026 (RBA).

The bank's long-term view is that rates will eventually fall, but only after inflation is controlled. The projection suggests the rate will decline to around 4.4 per cent toward the end of the forecast period.

Risks that could force the RBA's hand

The RBA Board has identified several specific risks that could change its plan. In minutes from a meeting held on 16 June 2026, the Board explained that it had left the cash rate unchanged at that time because of uncertainty regarding the conflict in the Middle East (RBA Interest Rates August 2026).

The Board views the Middle East conflict as a double-edged sword. It creates "downside risks" for economic growth (meaning the economy could shrink) and "upside risks" for inflation (meaning prices could spike). If energy prices rise due to this conflict, the RBA may be forced to raise rates to stop that inflation from spreading to other parts of the economy.

The Board is also watching two domestic issues:

1. Productivity: On 16 June 2026, the Board noted that if productivity growth—how much workers can produce per hour—stays weaker than expected, it will be harder to bring inflation down. When productivity is low, businesses often raise prices to cover their labour costs.
2. The Housing Market: The Board discussed the risk that a "material weakening" in the housing market could happen. If house prices fall sharply, people feel less wealthy and spend less money, which could hurt overall economic growth.

Summary of RBA projections

The following table shows the RBA's expectations for key economic indicators as of August 2026.

Nothing here is financial, legal or investment advice. Every figure is published by its named source and carries the date it was published; figures may since have changed.