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Australia's Central Bank to Remain Watchful as Inflation Risks Still Skewed to the Upside, NAB Says

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The Reserve Bank of Australia (RBA) will remain watchful after leaving its cash rate unchanged at 4.35% as risks to inflation are still skewed to the upside, National Australia Bank (NAB) said in a Wednesday report.

The decision to hold borrowing costs steady was expected, and the central bank maintained its expectations for core inflation to return to within the target range in the second half of 2027, NAB said.

In June, the RBA board stated that "growth in demand needs to slow" to ensure inflation returns to the target band, while the latest statement from the August meeting said "growth in aggregate demand needs to remain subdued."

This marks "an interesting shift" in the board's assessment, NAB said, adding that one interpretation of the change in language might be that the board believes no further slowing is required, just a steady quarterly run-rate of economic growth around 0.3% to 0.4% through to mid-2027.

NAB continues to expect the central bank to remain on hold through the rest of the year before implementing a downward cash rate move around the middle of next year.

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