Market’s bet on RBA adopting ‘wait-and-see’ approach pays off

Yasmine Raso

Senior Journalist

17 June 2026

Tuesday’s unanimous monetary policy decision by the Reserve Bank of Australia (RBA) to hold the official cash rate steady at 4.35 per cent and take a ‘wait-and-see’ approach was widely anticipated by industry commentators and economists, who all had three consecutive hikes weighing on their minds.

However, many still cautioned against getting too comfortable with what is most likely a temporary reprieve from such aggressive policy tightening, given the central bank did the opposite of confirming that rate hikes were off the table for future meetings.

“Investors should not mistake a pause for the all-clear. Markets have moved quickly from pricing in multiple hikes to barely pricing in one. We think that swing has gone too far,” VanEck’s Head of Investments & Capital Markets, Russel Chesler, said.

“Inflation has cooled at the headline level, but the pressure underneath is proving harder to kill. Trimmed mean inflation is still above the RBA’s target band, services inflation remains sticky, and the second-round effects from higher transport costs are still feeding through the economy, from food to building materials and housing.

“The latest wage decision adds another layer of risk. A 6% lift in the lowest minimum wage rates and a 4.75% rise in award wages could keep services inflation higher for longer. That does not guarantee another hike, but it makes it dangerous to assume the RBA is done.

“The problem for the RBA is that the economy is slowing at the same time. GDP growth is weakening, unemployment has risen to 4.5%, and households are running down savings buffers as spending outpaces disposable income. Australia is now facing the uncomfortable mix of softer growth and stubborn inflation.

“That is why we think the terminal rate for this cycle is either the current 4.35%, or 4.6% if the RBA is forced to move once more later this year. The risk of stagflation has risen. That may not mean recession, but it does mean markets could be underestimating how difficult the next phase becomes.”

BlackRock Australia’s Head of Fixed Income and Credit Product Strategy, Katherine Palmer, went so far as to forecast a potential rate hike coming before the end of the year.

“Growth momentum appears to be slowing, and recent GDP data doesn’t fully capture the impact of higher energy costs and geopolitical uncertainty,” she said.

“The RBA therefore will wait for further evidence on whether earlier rate hikes are doing enough to bring demand back into line with supply.

“Markets were positioned for a near-term pause. While markets are pricing around 50/50 chance of another increase in the cash rate by end of year, beyond that, the path is less definitive: some market participants see scope for cuts in 2027 if growth weakens and inflation begins to move sustainably lower.

“The key difference for Australia versus global peers is the domestic starting point. Inflation was already uncomfortably high before the recent energy shock, which means the RBA is likely to keep policy restrictive and data dependent until it has greater confidence that inflation is returning to target. We think market pricing on the prospect for another rate hike is fair, and would not rule out another 25bps hike this year.”

Pitcher Partners’ CIO, Cameron Curko, said the RBA was likely to be heavily dependent on the figures coming out of the next several months of data releases.

“Looking ahead there needs to be more economic pain in the form of slower growth or higher unemployment to head off the risk of further hikes. Core inflation for the year to April was still embedded above 3% and with the sign of spillovers from the conflict this may yet persist into May,” he said.

“An easing bias is unlikely until we see meaningful signs of inflation decelerating. The recent peace deal could be such a catalyst but hinges on many things going right at once such as no escalation in Lebanon and decisive closure on Iranian nuclear proliferation.

“A more likely cause, perhaps, is tax reform in the Federal Budget with recent reports from Westpac and other lenders flagging a meaningful slowdown in credit growth already underway that could force the RBA’s hand if the slowdown triggers broader economic weakness.”

MLC Economist Bob Cunneen noted the RBA “still has their finger on the trigger”, given it is expecting headline inflation to remain above four per cent this year.

“The central bank is concerned about immediate price pressures in the business sector and higher inflation expectations. The RBA noted that ‘some firms experiencing cost pressures are increasing the prices of their goods and services and others are looking to do so’,” he said.

“Inflation expectations ‘have eased but remain higher than earlier in the year’. Hence another interest rate rise is still on the RBA’s agenda until there are convincing signs that the inflation threat has passed.

“The bond market is still leaning towards another 0.25% interest rate hike as more likely. The Federal Government 2-year Bond Yield currently stands at 4.5% which suggests that the RBA will raise interest rates further to constrain inflation.”

Both CPA Australia and fixed income investment app Blossom also highlighted that while a hold was the better of two outcomes, many Australians and small businesses still remain under heavy financial strain.

“An unchanged cash rate means mortgage holders can breathe a small sigh of relief, but the reality is many Australians are still living with significantly higher borrowing costs and ongoing cost-of-living pressures,” Blossom co-founder, Ali Rosenberg, said.

“The bigger challenge for many Australians is that uncertainty hasn’t disappeared. The question is no longer just whether rates will rise or fall, but how individuals can build resilience and make smarter decisions with their savings and investments regardless of the economic cycle.”

“The reality is that cost pressures remain high – inflation is still persistent across essential goods and services, fuel costs remain volatile, and consumer confidence continues to be subdued,” Gavan Ord, Business and Investment Lead at CPA Australia, said.

“Many businesses would have been hoping for a clearer signal that conditions are easing, instead we’re seeing a holding pattern at a time when both households and businesses are still dealing with significantly higher costs than they were even 12 months ago.

“What small businesses need most is decisive government action to reduce red tape and improve the overall business environment.”