Bendigo Bank August 2026 Economic Update

Despite a complex global backdrop and a softening labour market, the Australian economy is showing remarkable resilience. In his August Economic Update, Bendigo Bank Chief Economist David Robertson unpacks the RBA's latest decision to keep rates on hold, explores the ongoing volatility across global markets, and explains why another rate hike could still be on the cards before the year is out.

Reserve Bank keeps official rates on hold

“As universally expected, the RBA kept official rates on hold in August at 4.35% but their comments in the Monetary Policy Statement were sufficiently hawkish to convince us to retain our view that another hike, most likely in November, is still more likely than not,” Mr Robertson said.

“RBA Governor Michele Bullock did acknowledge the outlook remains uncertain, and the obvious downside risks via falling property prices and very low consumer sentiment, but reiterated that inflation is still too high, with risks assessed to be ‘skewed to the upside’.

“RBA forecasts (like ours) predict that the economic growth rate will slow from current 2.5% growth rate to around 1.25%, but still a relatively soft landing supported by the assumption that energy prices have peaked and will slowly moderate.”

While oil prices are back below US$90 a barrel for now, this assumption may be tested by any lack of progress in US-Iran peace talks and the access of ships transiting the Strait of Hormuz, both which pose risks to the RBA’s forecasts for core inflation to be back near 2.5 % by December 2027.

“We continue to warn that assumptions of RBA rate cuts in 2027 seem very speculative - but admittedly there doesn’t appear any urgency for another hike, so we still believe rates will be on hold again in September,” he said.

Labour markets

One factor that will be influential for interest rates and consumer sentiment is labour markets, where the latest rise in unemployment to 4.4% and patchy jobs growth with upward revisions to ‘underemployment’ have the Reserve Bank describing labour conditions as ‘having eased by a little more than expected in recent months’.

The RBA now see unemployment nudging 5% by late next year; still later than our forecasts but looking more realistic: any variations to that profile will be relevant for monetary policy. But with military conflicts still impacting supply chains, and trade tensions back in focus, the resilience of our economy will be further tested.

Stock markets and the Aussie dollar

Despite these complexities and challenges, stock markets continue to reach record highs in Australia and around the world, as the build-out phase of the AI transformation dominates the headlines.

“The sheer volume of investment via US ‘hyperscalers’ and semiconductor firms is eye watering, but the knock-on impacts on broader industries, businesses and economies will be even more consequential and will probably see ongoing volatility for bond and equity markets,” Mr Robertson said.

Meanwhile in FX markets, volatility is also elevated after coordinated intervention from the Japanese Ministry of Finance and US Treasury to support the Yen, which had been trading around 164 to the dollar, its weakest level since 1986, in contrast to the relatively strong performance of the AUD, back above US70 cents.

“As outlined on our business insights website, we still lean to a mildly stronger Australian dollar this year, due to interest rate differentials, outperformance of our major trading partners in Asia, and downside risks to the US Dollar as their debt-to-GDP ratio approaches 125%,” he said.

Residential property prices

Lastly, residential property prices have broadened their decline with most capital cities now seeing modest falls in values, and the RBA noting that investor credit growth is expected to slow further. However, they also noted that business investment and demand for capital remains strong and broad-based across industries: a reminder of the likely drivers of the recovery expected next year as the economy looks beyond the Middle East conflict.