The Reserve Bank of Australia has held the official cash rate at 4.35% but warned higher interest rates are “quite possible” even if house prices keep falling.
The RBA unanimously left its cash rate unchanged at 4.35%, matching market expectations following a cumulative +75bps tightening across three rate hikes earlier this year. Policymakers observed that financial conditions have tightened sufficiently to slow economic momentum in line with forecasts, evidenced by cooling consumer spending, weakening housing activity, and a faster-than-expected easing in labor market conditions.
However, headline and core inflation remain elevated, driven by persistent capacity pressures from 2H25, near-term inflation expectations that stay above target, and renewed supply-side shocks from Middle East-driven commodity price increases. The Board projects inflation will only converge toward the midpoint of its target range in late 2027, emphasising that upside risks remain prominent.
Consequently, while the RBA held its policy steady to assess lagging data spillovers, policymakers explicitly maintained a hawkish bias, signaling a willingness to resume monetary tightening should persistent inflation risks materialise.
