RBA interest rates: Reserve Bank holds official cash rate at 4.35% as economy slows and unemployment rises

The Reserve Bank has left its official interest rate on hold at 4.35%, with the RBA decision expected after economic activity slowed and unemployment hit a four-year high. The cash rate was set at the RBA meeting on Tuesday. Photograph: AAP View image in fullscreen The Reserve Bank has left its official interest rate on hold at 4.35%, with the RBA decision expected after economic activity slowed and unemployment hit a four-year high. The cash rate was set at the RBA meeting on Tuesday. Photograph: AAP RBA interest rates: Reserve Bank holds official cash rate at 4.35% as economy slows and unemployment rises Australia" class="entity-link entity-organization" data-entity-id="3046" data-entity-type="organization">Reserve Bank of Australia decision on Tuesday comes after three consecutive cash rate hikes this year Follow our Australia news live blog for latest updates Get our breaking news email, free app or daily news podcast The Reserve Bank has warned it is ready to raise interest rates further despite leaving its official interest rate on hold at 4.35%. The widely expected decision on Tuesday will bring little relief to mortgage holders, already strained by the RBA’s three consecutive rate hikes earlier in 2026. In its statement accompanying the decision, the RBA’s rate-setting board said inflation was still too high and economic activity needed to slow further. “To achieve this, growth in demand needs to slow to reduce capacity pressures and help bring inflation back to target,” the board said. “There are signs that the economy is slowing as expected. But inflation is still too high and the board judged that it was appropriate to leave the cash rate target unchanged while it assesses the response to previous interest rate rises and the impact of the oil supply disruption.” “It will do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required.” All four major banks expected interest rates would stay on hold on Tuesday. Top economists at ANZ, Commonwealth Bank and NAB had forecast rates had hit their peak and would will start to fall from the middle of 2027. Financial markets, though, have bet a hike is more likely than not over the next 12 months. Westpac had predicted the cash rate would rise in August and September, with no cuts until 2028. Westpac’s chief economist, Luci Ellis, has predicted inflation will peak at 4.7% in late 2026, higher than the RBA’s forecast. In a note on Friday, Ellis wrote higher fuel prices from the US-Israel war on Iran would push up freight and other costs, keeping inflation high over 2026. Westpac expects petrol prices of 205 cents a litre and diesel at 239 cents a litre on average over the coming three months after the government’s fuel excise cut ends. The RBA board on Tuesday said higher fuel prices have started pushing up the prices of some goods and services, as expected. It said it was determined to prevent additional price rises. The board also said inflation could rise even higher and the economy slow even further than it expected in May, despite Donald Trump’s latest deal to end his war on Iran. “Resolution of the conflict in the Middle East is at an early stage, and there are plausible scenarios where inflation is higher and activity lower than envisaged under the May baseline forecasts,” the board said. Investors took the decision as a sign rate hikes would be less likely. The Australian dollar slipped from 70.54 US cents to 70.49 immediately after the decision and the Australian sharemarket jumped, with the benchmark S&P/ASX200 index rising from 8,890 points to 8,914 points. Stephen Smith, partner at Deloitte Access Economics, said the RBA had “little choice but to wait” on Tuesday to see how much further the economy slows and how soon oil supply returns to normal. “Another rate hike later in 2026 therefore remains firmly on the table,” Smith said. Economic activity was already slowing early in 2026. Households barely increased spending on non-essentials in the three months to March but cut back on saving to spend on essentials like electricity and fuel. Slower consumer spending saw real GDP growth falter to just 0.3% in the March quarter, from 0.9% in the December quarter of 2025. unemployment jumped to 4.5% in May for the first time since 2021. The board said it had expected consumer spending to slow and it was unworried by the higher unemployment rate given other measures suggested the job market was “more resilient”. For an owner-occupier with an average-sized new mortgage of $745,000, now paying a typical rate of 6%, the year’s rate increases have seen monthly repayments soar from $4,114 to $4,467. A fourth rate increase on Tuesday would have added another $120. The treasurer, Jim Chalmers, welcomed the decision to leave rates on hold, speaking to reporters on Tuesday. “It doesn’t make life any easier for people but it doesn’t make life harder either,” Chalmers said. Justin Zook, a senior director at Fitch Ratings, said on Monday interest rate hikes would probably hit household spending harder in 2026 than they had in 2022 and 2023, partly because households had less money in savings. “Households just don’t have … those piles of cash that they had because they weren’t out spending money during the pandemic,” Zook said. Explore more on these topics Australia" class="entity-link entity-organization" data-entity-id="3046" data-entity-type="organization">Reserve Bank of Australia Economics Interest rates news Share Reuse this content