RBA holds cash rate at 4.35 percent
The Reserve Bank of Australia's Monetary Policy Board decided today to leave the cash rate target unchanged at 4.35 percent. This decision comes as inflation remains too high despite signs of slowing consumer spending.
Inflationary pressures persist
Inflation picked up materially in the second half of 2025, with recent data confirming increased capacity pressures.
Both headline and underlying inflation remain elevated.
While oil prices have eased recently, energy and related commodity prices are still higher than before the Middle East conflict.
Some firms are increasing prices due to cost pressures, and short-term inflation expectations, though eased, are higher than earlier in the year.
The Board remains focused on ensuring inflation does not become embedded once the impulse from higher oil prices passes through, requiring demand to slow to reduce capacity pressures.
Tightening conditions, slowing growth
Financial conditions have tightened this year following three cash rate increases, leading to higher money market rates, government bond yields, and an appreciated exchange rate.
Consumer spending growth is slowing as expected, and the housing market shows a shift with price declines in some capital cities.
Although the unemployment rate was higher than expected in April, other labor market measures have shown resilience.
Business investment remains strong, and credit is readily available for households and businesses.
The Board is assessing the impact of previous rate rises and oil supply disruptions.
Uncertain outlook, rate hike risk
The RBA's decision to hold rates signals a cautious wait-and-see approach amidst persistent inflationary pressures and heightened uncertainties.
While the economy shows signs of slowing, the Board's explicit mention of further rate increases underscores the fragility of the current disinflationary path.
This stance suggests that a genuine pivot towards easing remains distant, with future policy heavily dependent on the uncertain global and domestic outlook.