National
RBA leaves cash rate at 4.35% after three straight hikes
The Reserve Bank of Australia has kept interest rates on hold at 4.35%, ending a streak of three consecutive rate hikes. The decision comes as economic growth slows, consumer spending weakens and unemployment rises to a four-year high of 4.5%. While some economists believe rates have now peaked, others expect further increases later this year as inflation risks remain a concern.
Key Highlights
- RBA keeps cash rate at 4.35%
- The move comes after three interest rate increases in a row last year.
- The policy board of the RBA voted by consensus to leave rates on hold.
- The economy has slowed and unemployment increased to 4.5%.
- The pause either has reached its final destination in the hiking cycle or it remains a fleeting point on the rate schedule, not all economists agree.
Following three consecutive hikes, the Reserve Bank of Australia (RBA) paused on interest rates today, maintaining the cash rate at 4.35% amid intensifying fears of slowing activity and rising unemployment.
Economists and the financial markets had widely expected the decision, although on Thursday at its June meeting RBA's monetary policy board opted unanimously to leave the official cash rate steady.
RBA keeps rates unchanged as growth slows
Australia's automatic monetary policy decision-making is a 90-degree turn. Annual real GDP growth decreased to 0.3% for the March quarter, down from a revised 0.9% in the December quarter 2025.
Consumer spending was also one of the few drivers that faltered, as households barely planned to increase spending on most non-essential items over the first three months of the year. Also, increasing numbers are having to resort to savings for basics like power and petrol in Australia.
The RBA's decision means sparing mortgage holders from another immediate hike to repayments, coming after three rate rises this year.
Rising Unemployment Adds to Economic Concerns
In May, Australia's jobless rate increased to 4.5%, its highest level since 2021. Households are likely to feel the effects of higher interest rates more than in previous years due to the fact that many households have depleted large savings buffers compiled during the pandemic, Justin Zook, senior director at Fitch Ratings said.
For an owner-occupier with an average new mortgage of $745,000 at 6% interest, a plan now costs $4,467/month instead of $4,114. A fourth hike would have lifted monthly repayments by about $120.
What do Markets expect?
All four major banks expected the RBA to keep rates on hold this month, but there is less certainty for what happens next. ANZ, Commonwealth Bank and NAB economists are forecasting interest rates to have peaked and to start falling from mid-2027.
However, financial markets continue to price rate hikes over the next 12 months. Westpac predicts the RBA will raise rates further in August and September, with no cuts until 2028. Higher oil prices associated with the Iran war could help keep inflation elevated through 2026, bank chief economist Luci Ellis said. He predicted inflation will be at 4.7% in late 2026, higher than the RBA’s forecast.
Last week Westpac flagged average petrol prices would rise to 205 cents per litre and diesel to an average of 239 cents per litre over the coming three months after the fuel excise cut from the government expired.
Source: The Guardian Australia
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