RBA holds cash rate target at 4.35%

Sydney (12 August)

The Reserve Bank of Australia’s (RBA) Monetary Policy Board has voted to hold its cash rate target at 4.35% – for the second consecutive time – because of slowing demand growth and weakening Iran-war-related cost pressures.

“[But] inflation remains too high, and the Board remains concerned about the upside risk to the inflation outlook,” RBA Governor Michele Bullock told journalists on 11 August. The RBA expects Australia’s annual consumer inflation rate to fall from 3.8% to 2.6% between June 2026 and December 2027, data from its Monetary Policy Statement show.

The RBA’s baseline inflation forecast assumes that Brent crude oil prices will fall from $94.90/barrel to $81.20/barrel over June-December 2026. December-dated Brent crude oil futures last traded at $83.84/barrel on 11 August, data from the Intercontinental Exchange show.

“[The RBA’s Monetary Policy] Board did not discuss a rate cut at its [August] meeting. It only discussed a raise and a stay,” Bullock said. “The Board is quite firm that if it needs to raise interest rates, if it looks like inflation is remaining higher than desirable … then [it] is prepared to raise [rates],” Bullock added.

“The Board is determined to ensure that expectations of higher inflation do not [become] embedded in price and wage-setting decisions,” Bullock said.

Australian consumers’ two-year forward inflation expectations rose from 5.5% to 5.7% over the week to 9 August, data from the ANZ-Roy Morgan Consumer Confidence report indicate. But their four-week moving average expectations remained steady at 5.7%, ANZ-Roy Morgan data show.

Australian financial conditions have tightened, and labour market conditions have loosened, in recent months because of three cash rate target increases early in 2026, the RBA said. New housing loans have also declined, likely because of cash rate target rises and investment-related tax changes.

By Avinash Govind