Reserve Bank of Australia chief economist Sarah Hunter said a further interest rate rise this year cannot be ruled out [1].

This possibility signals that the central bank remains cautious about inflation persistence, potentially increasing borrowing costs for millions of Australian households and businesses despite some cooling in price growth.

Hunter said that recent June-quarter inflation data were slightly below forecasts [1], stating "there weren't too many surprises" [1]. However, she said that domestic inflation pressures remain a concern. The RBA is monitoring whether these pressures will persist or ease as the year progresses.

Geopolitical instability is also factoring into the bank's outlook. Hunter said that "if the supply shocks from the Iran war become embedded in the economy, the central bank may have to act" [2]. Such shocks could push prices higher, forcing the RBA to tighten monetary policy to prevent inflation expectations from drifting upward.

Hunter said it is "critical that inflation expectations remain contained" [1]. This objective is central to the RBA's mandate to maintain price stability, and prevent a wage-price spiral.

Market participants are divided on the timing of any move. Some analysts at Westpac said that the RBA will deliver a fourth rate hike this year at the August meeting [2]. Bond traders have similarly indicated they are not ruling out a fourth rise [3]. Conversely, other analysts suggest an August hike now looks unlikely following the latest inflation data [4].

The RBA board is scheduled to meet on Aug. 10-11, 2026 [1]. The outcome of this meeting will determine whether the bank maintains current levels or continues its tightening cycle to combat embedded inflation.

“"critical that inflation expectations remain contained"”

The RBA is balancing a contradiction between cooling quarterly inflation data and the risk of external supply shocks. By keeping the possibility of a rate hike on the table, the bank is managing market expectations to ensure that businesses and consumers do not assume a pivot to lower rates is imminent, which could otherwise fuel further spending and inflation.