RBA Holds Cash Rate at 4.35 Per Cent Amid Ongoing Inflation Concerns
The Reserve Bank of Australia (RBA) has maintained the official cash rate at 4.35 per cent, a decision broadly anticipated by economists and market participants. The hold follows three consecutive rate increases in February, March and May 2026 — increases driven largely by persistent inflationary pressures and the global economic disruption triggered by the United States–Iran conflict, which precipitated a sharp rise in oil prices following the closure of the Strait of Hormuz.
In its accompanying monetary policy statement, RBA Governor Michele Bullock confirmed that the decision was unanimous, reaffirming the Board's commitment to taking "what it considers necessary" action to fulfil its mandate.
Governor Bullock stated:
"The Board remains focused on ensuring that inflation does not become embedded once the impulse from higher oil prices has passed through. To achieve this, growth in demand needs to slow to reduce capacity pressures and help bring inflation back to target.
"Following the three increases in the cash rate target since the beginning of the year, financial conditions are now tighter than they were, and there are signs that the economy is slowing as expected. But inflation is still too high and the Board judged that it was appropriate to leave the cash rate target unchanged while it assesses the response to previous interest rate rises and the impact of the oil supply disruption.
"Monetary policy is well placed to respond to developments and the Board is focused on its mandate to deliver price stability and full employment. It will do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required."
Bank Forecasts and Market Positioning
In the lead-up to the announcement, Australia's major banks revised their forecasts to align with a prolonged hold at 4.35 per cent, with the prospect of monetary policy easing deferred to the latter half of 2027. This position is shared by the Commonwealth Bank, ANZ and NAB. Westpac remains the notable outlier, projecting two further rate increases in August and September that would lift the cash rate to 4.85 per cent. Westpac contends that inflation risks remain insufficiently subdued — citing elevated energy prices, wage growth dynamics and ongoing geopolitical instability in the Middle East — to justify any declaration of victory by the central bank.
Economic Indicators Supporting the Hold
Recent economic data has lent weight to the case for a pause. The Australian Bureau of Statistics (ABS) reported GDP growth of 0.3 per cent for the March quarter, a modest but stabilising result. This was accompanied by a rise in the unemployment rate to 4.5 per cent over April 2026 and a marginal easing in headline inflation, with April's CPI data showing a decline from 4.6 per cent in March to 4.2 per cent. Notwithstanding this improvement, inflation remains materially above the RBA's target band of 2–3 per cent.
The trajectory is a source of concern. Underlying inflation, which had appeared to be approaching target in the latter half of 2025, subsequently reversed course — undermining earlier optimism that the tightening cycle had achieved its objective.
Governor's Commentary on the Energy Shock
At the Board's post-meeting press conference in May, Governor Bullock acknowledged the inherent constraints of monetary policy when confronted with an externally driven supply shock. Justifying the preceding rate increase, Bullock noted that Australians are "poorer because of this shock to oil prices and energy prices" and emphasised that the Board's actions were directed at preventing a secondary inflationary wave — one potentially amplified by business pricing behaviour and upward pressure on wages.
The Board has signalled that it retains both the willingness and the capacity to tighten policy further should economic conditions warrant.
Rick Maggi CFP, Financial Advisor (Perth), Westmount Financial