'Don't bank on it': Three factors shaping next week's interest rates decision

in brief The Reserve Bank board will decide on Tuesday whether to leave the cash rate at 4.35 per cent or change it. Inflation, unemployment and household spending are three key economic indicators shaping the decision. Millions of borrowers will be watching closely when the Reserve Bank of Australia (RBA) announces its latest interest rates decision next week. A mortgage expert says it will be a close call despite expectations among the 'big four' banks — Commonwealth Bank, Westpac, NAB and ANZ — that the central bank will leave the cash rate on hold at 4.35 per cent. The RBA has already lifted rates three times this year, while governor Michele Bullock has refused to rule out further hikes as inflation remains above its 2-3 per cent target band. 'They've got a clock ticking in the background, particularly when it comes to inflation,' said Sally Tindall, the data insights director at Canstar. 'The RBA board has repeatedly said that time is a factor in this battle with inflation because the longer we take to get back down, the harder it becomes, and the more entrenched inflation becomes.' The board will examine three key economic indicators released in recent weeks before handing down its decision on Tuesday. Inflationary pressures are frequently cited in the RBA's statements on its decision-making. In June, the RBA said inflation was still too high and warned higher fuel and commodity costs are starting to flow into other parts of the economy, including housing and construction. Bullock said Australia already had an inflation problem before disruptions to global oil markets caused by conflict in the Middle East. The most recent data from the Australian Bureau of Statistics (ABS) showed a shift in inflation in June: headline inflation fell from 4 per cent to 3.8 per cent while the trimmed mean, which strips out volatile items, remained steady at 3.6 per cent. Tindall said that inflation predictions have shifted over time primarily due to the war in the Middle East, which has added to inflationary pressures. The figures for June were 'perhaps better than we were expecting,' Tindall said, 'but still a long way from target.' The RBA aims to bring inflation down to between 2 and 3 per cent, fulfilling one of its mandates to keep it low and stable. Its other mandate is to support full employment, meaning as many Australians in work as possible without creating excessive inflation. Tindall described the unemployment rate as 'a critical data set for the RBA.' In June, the unemployment rate was 4.4 per cent, slightly below the 2026 peak of 4.5 per cent in April. Earlier this month, Bullock said they were higher than expected. However, Tindall said that while elevated, this figure of 4.4 per cent in itself is not going to push the board into 'ringing an alarm bell.' Consumer spending gives the RBA a window into how households are faring amid economic pressures, including cost of living and the impact of higher interest rates. In June 2026, household spending rose 0.8 per cent month-on-month. Tindall noted that this data can be hard to interpret, as it is difficult to isolate which families are struggling versus those not affected. The RBA will also look at liaison programs to better understand household financial conditions. While the big four banks expect the RBA to leave rates unchanged on Tuesday, Tindall advises borrowers to prepare for another potential rate hike. 'Don't bank on it,' she said. 'Spend the weekend reviewing your finances to ensure you can withstand another rate hike.' She suggested using the uncertainty to negotiate better rates with banks or consider refinancing. 'If you can get a personalised rate cut, that will help future-proof your finances,' she added. The article concludes with a disclaimer: 'This article is general information. Please see a professional if you need financial advice.'