Aussies should not expect any more interest rate cuts this year, Deutsche Bank’s chief economist Phil O’Donoghue warns

Aussies should not expect any more interest rate cuts this year as service inflation soars after more households got more cash back in their pockets.

This is the verdict from a leading economist ahead of Tuesday’s much-awaited decision from the Reserve Bank of Australia where it is widely expected to hold the cash rate at 3.6 per cent.

The RBA has lowered rates three times since February, before which the cash rate was held at 4.35 per cent for almost a year and a half to curb post-pandemic inflation.

It is expected to remain cautious as services inflation was quite strong in the latest ABS data, which points to an uptick in discretionary spending, Deutsche Bank’s chief economist Phil O’Donoghue said on Business Now.

“I think the RBA is going to be pretty worried about that,” Mr O’Donoghue said.

“I expect tomorrow we’re going to hear (RBA governor) Michele Bullock … sounding a cautious alarm about this service inflation.

“It should be a bit more circumspect, but I expect there’ll be a little hand-wringing from the RBA.

“We can still expect cuts … (but) I don’t see any more cuts this year. I think February next year might be the first opportunity for a cut from the RBA.”

While economists say there is a 50 per cent chance of a cut in December, future inflation data will be a key determinant in whether further relief is coming this year.

It comes as annual inflation for takeaway meals rose 3.8 per cent in August, while the cost of meals at restaurants jumped 2.8 per cent, according to the Australian Bureau of Statistics.

Mr O’Donoghue stressed that Ms Bullock has expressed a “real intolerance” of seeing the post-pandemic inflation return and will cement the RBA’s cautious approach for the foreseeable future.

“We’ve had three cuts so far, I think we can expect more cuts next year,” he said.

“Unfortunately, I think we’re just going to have to wait a little bit longer before we see further cuts from here.”

The Australian Bureau of Statistics’ monthly CPI data showed the annual rate rose to 3 per cent in August, up from 2.8 per cent in July.

This marks the highest annual inflation rate since July 2024, when inflation was 3.5 per cent.

Inflation has now almost creeped to the top of the Reserve Bank of Australia’s 2-3 per cent target band.

However, the bank relies more on trimmed mean inflation – the middle 70 per cent of price changes – to inform its decisions. 

Annual trimmed mean inflation was 2.6 per cent in August, down from 2.7 per cent.