RBA holds at 4.35 per cent, but keeps the door open

The Reserve Bank of Australia left the cash rate at 4.35 per cent on Tuesday, the second consecutive meeting without a move, in a decision economists and traders had almost universally expected.

The vote was unanimous. All nine members of the monetary policy board supported holding.

The pause follows three rate increases and comes as the economy shows signs of weakening under the combined weight of higher borrowing costs and elevated living expenses.

What the board said

The statement gave little comfort to anyone hoping the tightening cycle is finished.

With monetary policy judged to be somewhat restrictive, the board decided to leave the cash rate target unchanged while it assesses how the economy is evolving. The board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if upside risks materialise.

RBA monetary policy board statement, 11 August 2026

On prices, the language was direct: “While the impact of the Middle East conflict on inflation has so far been less than expected, headline inflation is still too high.”

The board added that it “will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions,” standard phrasing that commits it to nothing in either direction.

The forecasts moved in different directions

The quarterly Statement on Monetary Policy, released alongside the decision, revised three key numbers.

Trimmed mean inflation, which strips out volatile items and is the bank’s preferred gauge, is now expected to finish the year at 3.3 per cent. That is progress, but it still sits above the 2 to 3 per cent target band.

The unemployment revision is the one that matters most for the path from here. A forecast of 4.5 per cent by year end signals a bank that expects the labour market to loosen, and is prepared to let it.

Why the RBA is still an outlier

Australia remains in a small group of major economies still tightening rather than easing. Inflation is running well above the 2.5 per cent midpoint of the target, and markets are pricing roughly a 50 per cent chance of a further increase before the end of the year, driven in large part by inflationary pressure flowing from the conflict in the Middle East.

Oil has gained about 25 per cent since hostilities between Iran and the United States began in late February. So far, that has not fed through to Australian consumer prices as strongly as feared.

Two things pushed against another rise this meeting. June quarter inflation cooled faster than anticipated, and the housing market has weakened by more than the central bank expected. Both have prompted a number of economists to argue the next move will be down, though not until next year.

The case for another rise

Not everyone accepts that reading.

Russel Chesler, head of investments and capital markets at VanEck, argues markets are underpricing the risk of a fourth increase this year.

The market could be seriously underestimating the risk of another RBA rate hike. On the data currently in front of us, there remains a strong case for the RBA to hike again.

Russel Chesler, VanEck

His concern is the composition of what is left. Although headline inflation fell in June, the trimmed mean remained at 3.6 per cent, well above the target range.

Chesler pointed to housing as the largest single pressure point, rising 6.8 per cent over the year to 30 June. Within that, electricity prices climbed 22.4 per cent, new dwelling costs rose 5.8 per cent and rents were up 3.6 per cent.

“We have broad, domestically driven pressures, not temporary price movements the RBA can easily look through,” he said.

Housing is falling, and that may not be enough

The property slowdown now gripping the capital cities will not, on its own, keep the RBA on the sidelines, according to RBC BlueBay Asset Management.

Malin Rosengren, a portfolio manager at BlueBay Fixed Income, said there was insufficient data to justify a rise this week, but that November remains live. Household spending and credit growth both remain too high, they said, and the labour market is still tight.

The housing downturn in itself is not enough for the RBA. Need to see the downturn result in weaker household spending (wealth effect), tighter credit conditions, and softer construction activity.

Malin Rosengren, RBC BlueBay Asset Management

“As Bullock has drilled home, with the economy operating above potential, demand destruction is the required trade-off to tame inflation,” they said.

The scale of that downturn was revised sharply on Tuesday morning. ANZ now expects capital city prices to fall 10.6 per cent from peak to trough, and 4.3 per cent across this year alone. As recently as June, the bank was forecasting a 2.1 per cent decline for the year, less than half its new estimate.

What happens next

Governor Michele Bullock held a media conference at 3.30pm, with markets expecting her to maintain a hawkish tone and repeat that rates may need to rise further if inflation does not cool as hoped.

From there, attention turns to the September quarter inflation print and the labour force data between now and the November meeting. On the board’s own framing, the question is no longer whether policy is restrictive. It is whether it is restrictive enough, for long enough, and how much of the economy has to slow before the trimmed mean finally moves.

This article is general information about a monetary policy decision. It is not financial, investment or property advice. Figures are as reported on 11 August 2026 and forecasts are the published views of the institutions named.