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RBA Ready to Pause Rates, but Open to Further Hikes

Interest rates are broadly tipped to stay on hold for a third month in a row in September, but the possibility of more hikes is still alive.

The Reserve Bank board is due to meet on Tuesday afternoon for its monthly cash rate decision.

In August, the central bank opted to keep interest rates paused for the second consecutive month.

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The back-to-back months on hold followed four percentage points of increases that have piled pressure on borrowers.

A convincing slowdown in the monthly consumer price index, sinking to 4.9 percent in July from 5.4 percent in June, has fuelled much of the optimism for another hold in September.

Signs of softening in the job market and wages tracking sideways have also added to the case for no change.

Judo Bank economist Warren Hogan said inflation was moderating in line with the RBA’s forecasts, giving the board breathing space to sit back and continue monitoring in September.

But he told AAP it was still “way too early to be popping champagne corks”, with the relative heat of the economy his key concern.

While economic growth is slowing, Mr. Hogan warned that softness would need to stick around right through to next year to allow demand to get back into balance with supply and inflation to return to the two to three per cent target.

Robust retail sales numbers and strong business investment were indicators of a resilient economy.

“I personally think where we’re probably one rate hike short of the level that they could be comfortable sitting on right through next year,” Mr. Hogan said.

Westpac economist Bill Evans was also confident the RBA would hold steady at the September meeting.

He said the central bank had missed its chance to take out more insurance against inflation last month.

“Going forward from here, the evidence around an ongoing weak economy and slowing inflation will encourage the board to extend its pause through to the end of the year and into 2024,” Mr. Evans said.

He said the debate was likely now to turn to the timing of the first cut, with the bank pencilling in the September quarter of 2024.

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