RBA’s Bullock Signals Fourth Rate Hike as Housing Market Softens on July 29

Reserve Bank Governor Michele Bullock put a fourth interest rate hike on the table for August 11, saying the RBA is prepared to act if inflation stays above target. Yet her speech also revealed the housing market has softened more than the bank anticipated, and labour market conditions have eased faster than forecast. This contradiction sent the ASX 200 up 0.6% on Tuesday, with investors now pricing just a 21% chance of an August hike, down from 36% the week before.

Why Bullock sounded the rate rise alarm

Underlying inflation stands at 3.6%, well above the RBA’s 2-3% target. Bullock told the Anika Foundation on Tuesday that inflation has increased and remains above target, even before recent oil price rises. The RBA has already lifted rates three times this year to 4.35%, and Bullock said the board is prepared to raise the cash rate further if needed. If the RBA moves at its August 10-11 meeting, the rate would hit 4.60%, the highest since 2011.

Housing and labour markets showing unexpected weakness

Bullock acknowledged that demand growth has moderated as expected, but the housing market has softened more than the RBA anticipated. Labour market conditions have also eased faster than forecast. She warned that some further easing in labour market conditions will likely be required to bring inflation back to target. This mixed message prompted traders to cut their August rate hike odds significantly, with markets now pricing just a 21% chance of a move next month.

Australia’s productivity crisis limits policy options

Bullock raised a deeper concern: Australia’s weak productivity growth is the fundamental challenge facing the economy. She said the RBA cannot address slow productivity growth, and while the problem persists, workers will probably keep experiencing limited growth in real wages. Without stronger productivity, the economy cannot grow strongly without pushing inflation higher, which limits the RBA’s choices in the years ahead.

What this means for borrowers and savers

The conflicting signals from Bullock create uncertainty for households. A fourth rate hike would make mortgages more expensive, but the softening housing market and labour conditions suggest the RBA may pause sooner than feared. Three of the big four banks predict the RBA will hold rates for the rest of 2026 before cutting in 2027, while Westpac forecasts two more hikes this year followed by two cuts next year. The August 11 decision will clarify which path the RBA intends to take.

Final Thoughts

Bullock’s speech revealed a central bank caught between persistent inflation and weakening economic conditions. With housing and labour markets cooling faster than expected, the odds of an August rate hike have collapsed to just 21%, suggesting the RBA may soon shift from hiking to holding. Borrowers should prepare for rates to stay elevated through 2026.

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