Australia’s central bank has kept its cash rate unchanged at 4.35% for a second consecutive meeting, as policymakers assess a slowing economy, a cooling housing market and easing inflation pressures. The Reserve Bank of Australia, however, warned that it remains focused on bringing inflation back to its 2-3% target range and could raise rates again if upside inflation risks materialise
Australia’s central bank kept its benchmark cash rate unchanged at 4.35 per cent on Tuesday, holding borrowing costs steady for a second consecutive meeting as the economy slows but inflation remains above target.
The Reserve Bank of Australia (RBA) said it would do what was necessary to bring inflation back to its 2-3 per cent target range. It also left open the possibility of raising interest rates again if inflation risks increase.
The unanimous decision was widely expected by financial markets after recent data showed that underlying inflation had eased more than anticipated in the second quarter. The housing market has also weakened sharply as higher borrowing costs weigh on demand.
The RBA said economic growth was slowing as expected but warned that inflation remained too high.
“The Board remains focused on ensuring that high inflation does not become embedded,” the central bank said in its policy statement.
It added that growth in aggregate demand would need to remain subdued to reduce pressure on the economy’s capacity and bring inflation back towards target.
Inflation remains the key concern
The RBA has raised interest rates by a total of 75 basis points this year, reversing the amount of monetary policy easing delivered in 2025 as it sought to contain persistent inflationary pressures.
More from BusinessThe central bank now considers the current cash rate to be slightly restrictive. However, it has not ruled out further tightening if inflation fails to moderate as expected.
The latest inflation data provided some relief to policymakers. Consumer prices rose at a slower-than-expected pace in the June quarter, while underlying inflation also came in below forecasts. That gave the RBA room to keep rates unchanged in August.
Still, the central bank remains concerned about upside risks, particularly from higher energy prices and geopolitical tensions. The RBA has warned that inflation is still too high and is not expected to return to the middle of its target range until early next year.
The RBA projects inflation to ease to 3.6 per cent by the end of this year and to 2.6 per cent by the end of 2027.
Housing market cools
Higher borrowing costs have brought Australia’s once-booming housing market under pressure.
Auction clearance rates have fallen, loan applications have weakened and home sales have slowed, pointing to tougher conditions for the property market.
The housing slowdown is an important consideration for the RBA because higher interest rates have a direct impact on household borrowing costs and spending.
However, the broader economy has continued to show pockets of resilience. Consumer spending remained relatively solid, while the labour market continued to generate jobs.
That resilience means policymakers still have room to keep monetary policy restrictive while waiting for clearer evidence that inflation is moving sustainably towards the target.
Markets scale back hike bets
Financial markets had largely priced in Tuesday’s decision to keep the cash rate unchanged.
The Australian dollar was little changed at around $0.7055, while three-year government bond yields were also broadly steady at about 4.55 per cent following the decision.
Interest-rate swaps were pricing in roughly a 40 per cent probability of another rate increase this year, down from around 50 per cent before the policy announcement.
The RBA’s stance nevertheless means the prospect of another hike has not disappeared.
For households and businesses, that leaves borrowing costs elevated for longer. For financial markets, the focus will now turn to upcoming inflation, employment and spending data for signs of whether the central bank will need to tighten policy further or can maintain rates at the current level.
The RBA’s latest decision underscores the difficult balance facing policymakers: keeping demand subdued enough to bring inflation down without causing an unnecessarily sharp slowdown in the wider economy.
With inputs from agencies.
