The Reserve Bank of Australia has left its official cash rate unchanged at 4.35%, but warned that further increases remain a possibility. The widely anticipated decision on Tuesday offered little relief to mortgage holders already strained by three consecutive rate hikes earlier in 2026.
Governor Bullock's Statement
Reserve Bank governor Michele Bullock stated that another rate rise is on the table because prices are still rising too quickly. "If we need to increase again, we will," Bullock said. She noted that the RBA is not "alarmed" by the unemployment rate rising to 4.5%, describing the jobs market as "a bit tight," and does not expect the economy to shrink. "We don't want to put it into recession, we want to slow it enough that we can bring the inflation rate back down," she added.
Impact of Global Factors
Bullock indicated that Australia's inflation problem would not be resolved even if oil supply normalised and Donald Trump's peace deal with Iran succeeded. "[Peace] will help, I think, to ensure that inflation doesn't get supercharged, but we still have to make sure that that inflation problem we had prior to the conflict … is addressed," she said.
Expert Opinions
Stephen Smith, a partner at Deloitte Access Economics, said the RBA had "little choice but to wait" on Tuesday to see how much further the economy slows and how soon oil supply returns to normal. "Another rate hike later in 2026 therefore remains firmly on the table," Smith said. Rates markets continued to bet on about a 55% chance of another hike by December, while Westpac predicted a rate hike in August.
However, currency and stock traders began to bet that hikes have become less likely. The Australian dollar fell from 70.54 US cents to 70.49, and the Australian sharemarket rose on the benchmark S&P/ASX200 index from 8,890 points to 8,914 points. Commonwealth Bank and ANZ stood by their predictions that interest rates had peaked and would be cut in 2027. CBA economist Belinda Allen said the RBA offered a "balanced" perspective of the slowing economy.
Economic Indicators
Bullock said the board did not even consider hiking rates on Tuesday, and its decision to hold rates was unanimous. As household spending slowed under the weight of three rate hikes, businesses have started to tell the RBA they are unsure whether they can raise their prices. "Part of the process of bringing excess demand down is lowering the [spending] so that businesses might find it a bit harder to pass on cost increases," Bullock said.
Economic activity was already slowing early in 2026. Households barely increased spending on non-essentials in the three months to March but cut back on saving to spend on essentials like electricity and fuel. Slower consumer spending saw real GDP growth falter to just 0.3% in the March quarter, from 0.9% in the December quarter of 2025.
Impact on Mortgage Holders
For an owner-occupier with an average-sized new mortgage of $745,000, now paying a typical rate of 6%, the year's rate increases have seen monthly repayments soar from $4,114 to $4,467. A fourth rate increase in August would add another $120.
Government Response
Treasurer Jim Chalmers welcomed the decision to leave rates on hold. Speaking to reporters on Tuesday, he said, "It doesn't make life any easier for people but it doesn't make life harder either."
