RBA interest rates live updates: Reserve Bank set to hold after Iran-US peace deal ends risk of energy shock

Australian shares have fallen ahead of the central bank’s interest rate decision, with energy stocks the only clear winners as investors digest the realities of a touted US-Iran peace deal.

The S&P/ASX200 fell 38 points by noon on Tuesday, to be down 0.4 per cent to 8876.

The slip followed a Wall Street rally after the US and Iran struck a peace deal that would include the reopening of the Strait of Hormuz.

But key agreement details, mine removal and the re-establishment of shipping insurance top a long list of practical barriers to pre-conflict oil and gas supply levels.

“We are of the view that the reopening of the strait will remain a challenging logistical process regardless of the start date,” RBC Capital Markets head of global commodity strategy Helima Croft said.

“While we anticipate an increase in traffic as ships look to exit after 100-plus days on the water in the Gulf, we think it will take months to reach anything close to February 27 levels (especially if the security environment remains unsettled) and that peak Hormuz flows may actually be in the rear-view mirror.”

Energy stocks were the only sector in the green by midday, up 1.1 per cent as oil prices stabilised from Monday’s sell-off, supporting rebounds in Woodside, Santos and coal producers.

The picture wasn’t so clear for refinery operators, with Viva up 1.9 per cent to $2.16 and Ampol trading flat.

Elon Musk’s much-hyped and recently listed SpaceX company surged in after-hours trading in the US to a valuation above $US3 trillion ($4.2tr).

The Commonwealth Bank, NAB and ANZ all expect the RBA to leave the cash rate unchanged for the rest of this year.

Westpac on Friday reaffirmed it expects two further cash rate hikes in August and September this year, followed by cuts, but not until 2028.

For someone with a $600,000 mortgage and 25 years remaining at the start of the hikes this year, a 0.25 percentage point cash rate hike in August, as Westpac expects, would increase a borrower’s monthly repayments by $92.

Across what would then be four hikes for the year in February, March, May and August, the total monthly increase would be $364.

Since the central bank’s May meeting, unemployment has surprisingly risen to a four-and-a-half-year high, household spending has fallen and economic growth came in a touch weaker than expected.

Meantime, while inflation is still above the top of the RBA’s 2 to 3 per cent target, recent readings showed momentum wasn’t as strong as feared.

Govenor Michele Bullock told a parliamentary panel this month that the RBA has already seen some signs that its rate hikes are starting to work through the economy, pointing to a nascent slowdown in the housing market.

She did, however, express concern about the risk of second-round inflation effects emerging from the energy shock triggered by the Iran war.

The RBA expects a sharp deceleration in economic growth over its forecast horizon through mid-2028, when it predicts headline and core inflation will return to the 2.5 per cent midpoint of its target.

Still, some economists aren’t convinced the tightening cycle is over.

Citigroup’s Josh Williamson expects the RBA to pause this month but argues the decision may carry “hawkish overtones” due to uncertainty over the inflation outlook, and continues to forecast a quarter-point hike in August.

“While recent data provides space for a temporary pause, the risk of a domestic wage-price spiral and second-order inflationary effects from the Middle East conflict suggest policy is not yet restrictive enough,” he said.

While financial market traders still see another rate rise in 2026 as a 50:50 chance, Commonwealth Bank senior economist Ashwin Clarke said the reopening of the Strait of Hormuz was likely to ease inflationary pressures.

“In the near term, the reopening in the Strait of Hormuz is expected to put downward pressure on oil prices and that should be downward pressure on inflation,” he told The Nightly.

This in turn could see the Reserve Bank cut rates twice in the second half of 2027, which would take the cash rate back to 3.85 per cent for the first time since March, undoing two of this year’s three rate rises.

“Our expectation is that the next direction will be a cut - in mid-to-late 2027,” Mr Clarke said.

“It’s a long way off and a lot can happen between now and then, there’s a lot of uncertainty around that call, but we do expect two cuts in interest rates from mid-2027.”

Rates may not be moving today (hopefully), but that doesn’t mean homeowners should simply accept the rate they’re on, says the Finance Brokers Association of Australia.

With three rate rises this year, homeowners are already feeling the pain as savings now turn into repayments.

“Many Australians are unknowing victims of ‘rate creep’, where lenders raise rates for existing customers while offering discounted rates to new borrowers,” said association spokesman Peter White.

“This means you could be paying more in repayments than you should be.

“It’s a competitive lending market and many borrowers are unaware they can approach their lender and ask for a rate reduction. If the lender won’t do this – and many will not as they assume you won’t leave – ask a mortgage broker to look at the market and assess your situation and the options available.

“It is also important to note that brokers are legally obliged to act in your best interests, whereas lenders are not and cannot as they sell products.

“As cost of living pressures mount, there may be savings available for borrowers who are proactive.”

The Reserve Bank will, in all likelihood, hit pause today.

But homeowners have been warned they should not expect governor Michele Bullock to come to their rescue any time soon.

During economic slowdowns, the central bank has often been the “knight in shining armour” for households, cutting interest rates when times are tough to give the economy a boost, HSBC chief economist Paul Bloxham said.

A sluggish GDP print for the March quarter and rising unemployment suggest Australia is already in a downswing.

But while he predicted no more hikes from the Reserve Bank this cycle, mortgage holders were unlikely to receive any rate relief until at least 2027, Mr Bloxham said.

The board should take a lesson from 2025, when it cut interest rates three times as inflation was still coming down, and not turn its back on the inflation dragon until it is sufficiently tamed, he said.

“We expect the board to judge that now is the time to pause, but that the fight may not be over yet,” Mr Bloxham wrote in a research note.

“The knight will need to remain armed and vigilant. No returning with good news of a slayed dragon and cutting the cash rate quite yet.”

Financial markets agreed with the vast majority of economists that the Reserve Bank would hold the cash rate steady at 4.35 per cent on Tuesday, but were pricing in about a one-in-two chance of one more rate rise in 2026.