Economists are widely expecting the RBA to hold its borrowing rate at a 12-year high at yet another policy meeting, with Governor Michele Bullock likely to retain her hawkish rhetoric during the press conference.

In lieu of the stickier nature of inflation, the Australian central bank could leave the door ajar for a rate hike this year, especially after the Minutes of the RBA’s May meeting showed that the board members considered increasing interest rates.

However, the RBA could refrain from explicitly signaling a policy pivot in the upcoming meetings, maintaining a ‘higher rates for longer’ view.

The May policy statement read, “recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth. Persistence of services inflation is a key uncertainty.”

Therefore, “not ruling anything in or out on future decisions,” the statement added.

The trimmed mean Consumer Price Index (CPI), the RBA’s measure of underlying inflation, ticked lower from 4.2% YoY to 4.0% year-over-year in the three months to March, but at a slower pace than expected. Meanwhile, The first quarter headline inflation rate was 1%, compared with the 0.6% pace in the December quarter. Economists had tipped it would rise to 0.8%. The main reason behind the slower-than-expected decline in inflation was the elevated services inflation alongside a tight labor market. This remains a major cause of concern for the central bank.

The recent labor market data published by the Australian Bureau of Statistics (ABS)  showed that the Australian economy added 39,700 jobs in May, driven by full-time employment, compared to an expected 30,000 gain. The Unemployment Rate dipped to 4% in May from 4.1% in April.

Against this economic backdrop, the RBA is likely to remain in a wait-and-see mode until the release of the second quarter inflation data due on July 31. Another unwelcome surprise on the inflation front could warrant the RBA’s action.

Previewing the RBA policy decision, analysts at TD Securities (TDS) explained, “the Board is likely to reiterate that it "...will remain vigilant to upside risks." However we are not expecting the Board to shift its tone, comfortable for now that a higher for longer cash rate will do its job of getting on top of inflation. The Bank has indicated it's reluctant to 'fine tune' policy but if the Bank mentions Q2 CPI as a risk, this would be considered hawkish.”