Bank economists say another Reserve Bank hike to the cash rate target of 50 basis points - half a percentage point or 0.50% - is all but certain when the Board meets on Tuesday at 2.30pm.
Westpac chief economist Bill Evans expects RBA Governor Dr Phil Lowe to get tough when it comes to reining-in heightened inflation.
"The much more cautious, softer rhetoric - along with the cautious forecasts - risks the RBA losing control of inflationary expectations," Mr Evans said.
Westpac economists forecast the RBA to start hiking the cash rate target by more modest 25 basis point increases from October and through February - by which point "we expect that it will become evident that the Australian economy is clearly slowing with clear evidence of continuing deterioration", according to Mr Evans.
"There will be a price to pay for such success [of reining in inflation]; we forecast the economy to grow by only 1% in 2023 - well below the trend rate of growth of around 2.5%," he said.
Commonwealth Bank's head of Australian economics Gareth Aird also expects tomorrow's hike to be the last 50 basis point one, and there's room for one more 25 basis point hike in October.
"We think that - provided the RBA pause for at least a few months in their tightening cycle when the cash rate is 2.60% or 2.85% - the data will indicate that there is no need to continue to take the policy rate higher," Mr Aird said.
"Indeed taking the cash rate higher would likely generate a hard landing in the economy.
"There's a degree to which the Board is flying blind."
Gareth Aird, CBA head of Australian economics.
ANZ rates strategist Gregorius Steven said it might not be surprising to see a softer approach from Governor Lowe.
"We are also alert to the possibility of a dovish shift via the reference to the normalisation of monetary policy being changed or dropped," Mr Steven said.
"Wednesday will see the release of second-quarter GDP, with growth of 0.8% quarter-on-quarter expected."
What are home loans and deposits doing?
An emerging theme over the past couple of weeks has been that banks are decreasing variable-rate home loans, while some deposit rates are also going down - particularly in the term deposit space.
This could be an indicator that banks expect the RBA rate rises to plateau or stop entirely soon.
For example, Bank of Queensland cut variable rates by up to 45 basis points on Monday morning.
Last week, CommBank and NAB also cut variable home loan rates by up to 80 basis points, as did Bankwest.
In the deposit space, Judo Bank continues to tinker with its term deposit rates; its one-year rate was cut by 5 basis points (0.05%) to 3.60% p.a.
This means it no longer holds the mantle in this space, with Macquarie's 3.65% p.a. now in top spot.
Photo by Sunder Muthukamaran on Unsplash
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