RBA Holds Rates at 4.35%, Warns Further Hikes Possible

Australia's central bank left its benchmark cash rate unchanged at 4.35% on Tuesday, marking the second consecutive meeting without a change. The Reserve Bank of Australia (RBA) said the economy was slowing broadly as expected, but cautioned that further policy tightening could not be ruled out if inflation pressures re-emerge.

In a statement following its August policy meeting, the RBA reiterated its commitment to bringing inflation back to the 2%–3% target range. The board said it would do whatever was necessary to achieve this, including raising the cash rate further if upside risks to prices materialise.

"The Board remains focused on ensuring that high inflation does not become embedded," policymakers said. They added that growth in aggregate demand needs to stay subdued to reduce capacity pressures and bring inflation back to target.

The decision was unanimous and widely anticipated by markets. Recent data showed second-quarter inflation came in below forecasts, while the housing market weakened more than policymakers had expected. A trimmed mean measure of underlying inflation held at 3.6% — below the RBA's own projection of 3.8% but still above the target band.

The RBA has raised rates by 75 basis points this year, fully reversing the easing implemented in 2025. It now judges the current cash rate to be slightly restrictive but has not ruled out additional tightening. Governor Michele Bullock said last month that a further slowdown in the economy may be required to bring inflation down.

Meanwhile, the housing market has cooled sharply, with auction clearance rates tumbling, loan applications plunging, and sales slumping. Consumer spending, however, remains solid, and the labour market continues to add jobs. Policymakers are also watching the recent escalation in the Middle East conflict, which could push oil prices higher and feed into broader inflation.

The RBA now expects inflation to return to the 2%–3% target band in the second half of next year. Consumer price inflation, which peaked at 3.9% in the second quarter, is projected to ease to 3.6% by the end of this year and to 2.6% by the end of 2027.

Following the announcement, the Australian dollar held steady at $0.7055, while three-year government bond yields reversed earlier gains to trade flat at 4.55%. Swaps markets imply around a 40% chance of another rate hike this year, down from 50% before the meeting.