For the second consecutive meeting, Australia's Reserve Bank left its cash rate unchanged at 4.35 per cent — a pause, not a pivot. Inflation has held above the bank's target band for eleven straight months, and the board's message was measured but firm: the tools remain on the table. In an economy running warmer than it can sustain, and with geopolitical pressures adding fuel to the fire, the quiet of a held rate carries its own kind of tension.
RBA holds rates at 4.35% but signals further hikes possible as inflation stays elevated
The door to further rate increases was still open
Mark
Why did the RBA hold rates when inflation is still above target?
Mimi
Because they're trying to balance two competing risks. Raising rates too fast could tip the economy into recession; holding too long could let inflation become entrenched. They chose to pause and watch.
Mark
But they said they might hike again. Doesn't that contradict holding?
Mimi
Not really. They're saying the data will decide. If inflation stays stubborn or risks materialize—like oil prices spiking further—they'll act. If it keeps falling naturally, they won't need to.
Mark
What does "the economy operating above sustainable capacity" actually mean?
Mimi
It means there's too much money chasing too few goods. Businesses are busy, workers are in demand, wages are rising. That's good in theory, but it keeps pushing prices up.
Mark
The fuel tax relief expired. Does that make the RBA's job harder?
Mimi
Exactly. That 16 cents a litre was helping hold down inflation. Now it's gone, so prices will likely tick up again. The RBA has to account for that when deciding whether to hike.
Mark
When will we actually know if they're winning?
Mimi
June 2027, if their forecast is right. That's when they expect inflation to finally settle back into the target band. Until then, it's a waiting game.
O Pulso
- Inflation has refused to retreat into the RBA's 2–3% comfort zone for nearly a year, keeping borrowers in a prolonged state of financial suspense.
- A trio of rate hikes earlier in 2026 — February, March, and May — already squeezed household budgets, and the board has made clear a fourth is still possible, potentially pushing rates to a fifteen-year high of 4.6%.
- The expiry of fuel tax relief in early August quietly removed a price buffer just as the RBA was trying to bring inflation to heel, compounding pressure on everyday costs.
- Middle East conflict continues to threaten oil prices and supply chains, adding an unpredictable external variable to an already delicate domestic balancing act.
- The RBA's own forecasts concede inflation will remain above target until at least June 2027, meaning the relief borrowers are waiting for is still the better part of a year away.
For the second consecutive meeting, Australia's Reserve Bank left its cash rate unchanged at 4.35 per cent — a pause, not a pivot. Inflation has held above the bank's target band for eleven straight months, and the board's message was measured but firm: the tools remain on the table. In an economy running warmer than it can sustain, and with geopolitical pressures adding fuel to the fire, the quiet of a held rate carries its own kind of tension.
On a Tuesday afternoon in August, the Reserve Bank's nine-member board voted unanimously to leave the cash rate at 4.35 per cent — the same level it had occupied since June. The decision itself was widely expected. The statement that followed was the thing worth reading carefully. Inflation remained too high, the board said, and the possibility of further increases had not been ruled out.
For eleven consecutive months, both headline inflation and the trimmed mean measure had sat above the bank's 2–3 per cent target. June brought a modest improvement — headline inflation eased to 3.8 per cent — but the trimmed mean held at 3.6 per cent. The board had already raised rates three times in 2026 before pausing in June, and KPMG's chief economist Brendan Rynne noted the bank had deliberately preserved room to move again. A rise to 4.6 per cent, a fifteen-year high, remained a live possibility.
Treasurer Jim Chalmers acknowledged the cautious progress while being careful not to overstate it. Prices were still climbing faster than households could absorb. Two forces were working against the RBA's efforts: ongoing Middle East conflict was pushing oil prices higher, and the government's temporary fuel excise relief — worth 16 cents a litre — had expired in early August, removing a quiet brake on prices at precisely the wrong moment.
The bank's updated forecasts projected headline inflation falling to 2.8 per cent and the trimmed mean to 3 per cent by June 2027 — but that meant another ten months above target. For borrowers, the rate rises had paused, but the RBA had not declared its work done. The economy was still running hotter than it could sustain, and the board remained prepared to act. The waiting, as things stood, was far from over.
The Reserve Bank's nine-member board sat down on Tuesday afternoon and made a decision that surprised no one: they would leave the cash rate where it had been sitting since June, at 4.35 per cent. But the statement they released after the vote carried a warning. Inflation, they said, remained too high. The door to further rate increases was still open.
For eleven months running, both the headline inflation rate and the underlying trimmed mean measure had stayed above the RBA's comfort zone of 2 to 3 per cent. In June, the headline figure had ticked down to 3.8 per cent from 4 per cent the month before—a modest improvement, but not enough to declare victory. The trimmed mean, which strips out volatile items like fuel and fresh food, sat at 3.6 per cent. The board's message was clear: we are watching, and we are ready to act if things get worse.
The decision to hold came after the RBA had raised rates three times earlier in the year—in February, March, and May—before pausing in June. Brendan Rynne, chief economist at KPMG, said the bank had deliberately left room to maneuver. Another increase to 4.6 per cent, which would mark a fifteen-year high, remained possible before the year ended. The concern driving this caution was structural: the economy, the board believed, was running hotter than it could sustain. That excess heat was keeping inflation pressures alive.
Treasurer Jim Chalmers struck a careful note when asked about the decision. Three months of moderating inflation was progress, he acknowledged, but not cause for celebration. People were still under pressure. Prices were still climbing faster than anyone wanted. The Middle East conflict was pushing oil prices higher, which rippled through to the pump and the supermarket shelf. And then there was the fuel tax relief—the government had temporarily cut the excise and GST by 32 cents a litre, but that 16-cent-a-litre relief had expired earlier in August, removing a brake on prices just as the RBA was trying to cool things down.
The bank's own forecasts, updated on Tuesday, painted a picture of a slow descent. Headline inflation would fall to 2.8 per cent by June 2027, they predicted, while trimmed mean would ease to 3 per cent. But that meant living above target for another ten months. The geopolitical backdrop added uncertainty. The Middle East tensions had not yet hit inflation as hard as some feared—the crude oil surge that followed the US strikes on Iran had been less severe than previous shocks—but the risk remained that things could worsen.
For borrowers, the message was mixed. The rate rises had stopped, at least for now. But the RBA was signaling that it had not finished its work. The economy needed to cool further. Inflation needed to come down. And if the data suggested that wasn't happening on its own, the board was prepared to push rates higher still. The wait, in other words, was not over.
Citações Notáveis
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 board statement
Inflation has now moderated three months in a row but it's still higher than we'd like and people are still under pressure— Treasurer Jim Chalmers
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