Cash rate target held at 4.35 percent after three increases
The Reserve Bank of Australia has left the cash rate target unchanged at 4.35 percent following three increases earlier this year. The Monetary Policy Board decided unanimously at its August meeting to assess the impact of tighter financial conditions.
Capacity pressures and sticky oil
The Reserve Bank of Australia's Monetary Policy Board voted unanimously to keep the cash rate target at 4.35 percent.
The decision follows three rate increases earlier this year, which have tightened financial conditions, raised money market rates, and appreciated the exchange rate.
Inflation picked up in late 2025 due to ongoing capacity pressures, and trimmed mean inflation remains elevated.
While the Middle East conflict's effect on domestic prices has been less than initially feared, higher global oil prices continue to pass through to goods and services.
The board projects inflation returning to the midpoint of its target range only by late 2027, with risks skewed to the upside.
Housing cools while investment holds
The broader Australian economy is showing signs of slowing as expected under restrictive policy settings.
Consumer spending growth is moderating, and housing prices are falling in several capital cities alongside a noticeable drop in new housing loans.
Conversely, business investment and debt growth remain strong.
Labour market conditions have eased slightly more than expected, though leading indicators suggest limited further cooling short-term.
Weak productivity growth continues to constrain potential output, while trading partner growth remains resilient due to AI investment.
Breathing room before further action
Holding the cash rate at 4.35 percent gives the board breathing room after three rate increases, but it hardly signals an end to tightening.
Persistent capacity pressures and oil price shocks keep inflation dangerously sticky until late 2027.
If domestic cost pressures fail to subside, the central bank will have no choice but to act again.