- Lead. The Reserve Bank of Australia held its cash rate at 4.35% on August 11 — unanimously — after three increases earlier in 2026, but the board considered only holding or hiking, never cutting.
- Fact. Governor Michele Bullock cited upside risks to inflation from the Middle East conflict’s effect on energy prices, and the bank’s statement confirmed that underlying inflation remains above the target band.
- Stake. Most major Australian banks do not forecast a rate cut before 2027, and the RBA’s new projections push the return to the 2.5% inflation midpoint out to early 2028 — meaning the cost of credit in Australia will stay elevated well beyond what many borrowers had planned for.
The August Decision
The RBA board met on August 11 and voted unanimously to keep the cash rate at 4.35 per cent. Crucially, the board confirmed that it considered only two options: hold, or raise. Cutting rates was not on the table. That framing, from Bullock’s press conference, signals that the bank’s bias remains upward even as the economy shows signs of slowing in response to the three hikes delivered earlier in 2026.
Bullock told reporters that risks to inflation remain “to the upside,” pointing specifically to the Middle East conflict as a factor feeding higher energy costs into the inflation mix. The same dynamic has delayed central banks globally from delivering the rate relief that markets had anticipated at the start of the year.
A More Optimistic Forecast — With Caveats
The August Statement on Monetary Policy offered a marginally more positive picture than the May edition. The RBA now believes inflation may have peaked at a lower level than its previous models forecast. However, the bank projects that underlying inflation will not return to the 2.5 per cent midpoint of its target band until early 2028 — roughly two and a half years from the August meeting.
The labour market remains a source of tension in that forecast. Employment conditions have not softened as quickly as the RBA modelled after the 2026 rate increases, which means demand-driven inflationary pressure has not fully dissipated. The bank has accordingly kept financial conditions tight and signalled no appetite for early easing.
Where Australia Sits Among Central Banks
Australia’s hold follows a pattern visible across the developed world, where energy-price shocks from the Middle East have complicated the path back to target inflation. The Bank of Japan’s own internal debate has turned conspicuously hawkish, with one BOJ board member calling for faster hikes than markets anticipated, reflecting how sticky price pressures have become in Asia-Pacific economies as well.
For Australian households carrying large mortgage balances — built up during the near-zero rate era through 2021 — the combination of three past hikes and an extended high-rate period is the most financially pressured environment in more than a decade. Property prices have declined somewhat, the RBA noted, but by slightly less than the bank had forecast, which limits the disinflationary relief that weaker housing demand was expected to provide.
As Bloomberg reported, the August hold keeps the RBA’s key rate at the same level it reached after the most recent hike cycle — a level not seen in Australia since 2012.