Bendigo Bank July Economic Update

As the new Financial Year kicks off, Bendigo Bank Chief Economist David Robertson shares his forecast on interest rates, property trends, and what's next for Aussie homeowners.

A hold in August, but one more hike looms

"While the RBA held rates steady in June, it was clear they remain focussed on their dual mandate of price stability and full employment, issuing the blunt message they will do what it takes to achieve that outcome – including another hike to the cash rate,” Mr Robertson said.

“It’s our prediction here at Bendigo Bank that Aussie homeowners will be able to catch their breath in August, with recent economic data pointing to a hold at the RBA’s next meeting.

“Given strong labour markets and national unemployment at 4.4%, the price stability part of the RBA’s mandate remains the challenge. Headline CPI fell to 4% in the May inflation data, but core inflation rose to 3.6% and appears likely to remain above target for at least another 12 months.

“This doesn’t necessarily mean the RBA needs to tighten rates further, as oil prices have moderated and more ships make their way through the Strait of Hormuz. Our view remains the tightening bias will continue throughout the new financial year, with the risk of one more hike around year-end, with recent talk of rate cuts next year appearing premature,” Mr Robertson said.

“Rate cuts in 2027 would need several prerequisites: the underlying inflation rate would presumably need to be close to 2.5%, and the RBA would need to form the view that the economy needs support.

“While we expect growth and household demand to slow in the second half of 2026, estimates of a ‘neutral cash rate’ continue to rise (to around 4%), meaning rates today are only mildly restrictive based on RBA estimates.

“A scenario where rate cuts would be more urgently needed is a sharper slowdown bordering on recession. While this isn’t our central forecast, there are several sources of pessimism offshore and locally, including in residential property,” Mr Robertson said.

Housing market cools, but supply still tight

"Auction clearance rates have fallen below 50% in capital cities. While outright falls in property prices remain confined to Sydney and Melbourne, there are concerns the slowdown may broaden,” Mr Robertson said.

“Our forecasts see national dwelling prices much flatter over the next twelve months with risks to the downside as the impact of tax changes becomes evident, but supply is still struggling to keep up with demand.

How this all feeds into the broader economic slowdown remains to be seen. For the moment, household spending data is showing resilience, and with strong labour markets, the risk of recession appears low - especially assuming the oil price has peaked."

Global markets vs the ASX

"Stock markets continue to take a positive view of the Middle East conflict eventually being resolved and are optimistic about AI investment. This saw the US S&P500 up 20% last financial year and the Nasdaq over 25%, while our ASX200 gained just 3%,” Mr Robertson said.

“Assuming the focus steadily moves from the oil crisis to the global tech investment boom, our economy's recovery from the 2026 slowdown will presumably be linked to this mega-trend, although markets will be prone to corrections.

“In summary, the RBA cash rate may well plateau at or just above its current level for the rest of this year and for most of next, despite the economy decelerating. Without another global shock, the stronger conditions evident at the start of this year should reassert themselves into 2027. Jobs, inflation, and household spending data will be key to the RBA’s next policy decision in August, where we expect no change in the cash rate,” Mr Robertson concluded.