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.
The central bank’s governor, Michele Bullock, said another rate rise was on the table because prices were still rising too fast.
“If we need to increase again, we will,” Bullock said.
She said the RBA was not “alarmed” by the unemployment rate rising to 4.5%, saying the jobs market was still “a bit tight”, and did not expect the economy to shrink.
“We don’t want to put it into recession, we want to slow it enough that we can bring the inflation rate back down,” she said.
Australia’s inflation problem would not be solved even if oil supply normalised and Donald Trump’s peace deal with Iran succeeded, she said.
“[Peace] will help, I think, to ensure that inflation doesn’t get supercharged, but we still have to make sure that that inflation problem we had prior to the conflict … is addressed,” Bullock said.
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.
Rates markets continued to bet there was about a 55% chance of another hike by December, after Tuesday’s decision. Westpac continued to predict a rate hike in August.
But currency and stock traders started to bet hikes had become less likely. The Australian dollar fell from 70.54 US cents to 70.49 and the Australian sharemarket rose on the benchmark S&P/ASX200 index, from 8,890 points to 8,914 points.
Commonwealth Bank and ANZ stood by their predictions interest rates had peaked and would be cut in 2027, with CBA economist Belinda Allen saying the RBA offered a “balanced” perspective of the slowing economy.
Bullock said the board did not even consider hiking rates on Tuesday, while its decision to hold rates was unanimous.
As household spending slowed under the weight of three rate hikes, businesses have started to tell the RBA they are unsure whether they can raise their prices, she said.
“Part of the process of bringing excess demand down is lowering the [spending] so that businesses might find it a bit harder to pass on cost increases,” Bullock 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.
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 in August would add 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.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: theguardian.com
