Steve Campbell: RBA on hold but tightening bias remains

The Reserve Bank of Australia (RBA) may be on hold, but the inflation fight is far from over. Pendal head of cash strategies STEVE CAMPBELL breaks down the latest commentary and what it means for future rate moves

• RBA watches data as inflation persists
• Business activity complicates inflation outlook
• Find out about Pendal’s cash funds

THE RBA left the cash rate unchanged at 4.35% at its August meeting. The decision was unanimous. No surprises there.

After the weaker inflation data in late July the market removed any likelihood of further tightening.

The key points from the RBA’s statement today are:

• Headline inflation is still too high and trimmed mean inflation remains elevated;
• The labour market has eased by a little more than expected although leading indicators point to only limited easing;
• Momentum in the housing market has shifted and new housing loans have declined noticeably;
• Historically weak productivity growth continues to constrain potential growth; and
• Inflation is not expected to return to the target band until the end of 2027

Also released today were the RBA’s updated set of economic forecasts via its Statement on Monetary Policy.

The latest set of forecasts are as follows: –

Some high level observations here are: –

• Inflation is not forecast to move back in the band until the end of next year. The RBA also noted that there are upside risks to this projection.
• Data centres are having an impact with business investment forecasts for 2026 revised 3.5% higher to 4.3% and for 2027 revised 1.4% higher to 3.2%. The benefit to economic growth is more subdued due to the imported components required detracting from the net trade position.
• Dwelling investment has been revised lower, with the 2027 forecast reduced by 0.4% to -0.7%. No surprises there either – if those building are no longer getting the price they need to be warrant building, then the tools go down

Productivity growth remains a key concern for the RBA, which sees the economy running with demand ahead of supply currently, and a period of weaker growth is required to bring this back into balance.

If demand was to pick up for whatever reason, then it is likely to feed through more quickly into higher inflation outcomes. The RBA does not want to see higher inflation expectations becoming embedded in the economy.

NAB Business Survey – picking up, slightly

The NAB monthly business survey showed both capacity utilisation and labour costs picking up – not something the RBA would welcome.

Deputy Governor Andrew Hauser has spoken about capacity utilisation previously. The economy did not have the excess capacity to handle the pickup in demand in the second half of 2025 without generating inflation.

According to the NAB survey, capacity utilisation picked up from 81.9% in May to 83% in July.

Another piece of data – household spending – released in early August was also much stronger than expected.

According to the Australian Bureau of Statistics (ABS), household spending rose 0.8% in June taking annual household spending growth to 6%.

So where to from here?

There are plenty of moving parts in the inflation equation.

Data centre building will offset the decline from dwelling investment in the nearer term.

It is not without inflation consequences. Competition for labour along with the energy required to maintain those centres, for example.

Inflation remains uncomfortable for the RBA. Further policy tightening can’t be ruled out. Each monthly inflation data will be closely watched.

Find out about

Pendal Managed Cash Fund

Steve Campbell, Head of Cash Strategies

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If you’d like to hear more about how Pendal’s Income & Fixed Interest team is positioning for this environment, please contact us through your account manager by reply email.

About Steve Campbell and Pendal’s Income and Fixed Interest team

Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.

Find out more about Pendal’s cash funds:

Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal Managed Cash Fund

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

Find out more about Pendal’s fixed interest strategies here