There's relief for mortgage holders this month, after the Reserve Bank of Australia left the official cash rate unchanged at 4.35%, pausing after three consecutive increases this year. It;s not a full sigh of relief, though, with the regulator signalling it remains prepared to tighten policy further if inflation does not continue moving back toward target.
Tuesday's decision was unanimous and widely expected by markets, with the RBA opting to assess the impact of its earlier rate hikes and recent disruption to global oil supplies.
While the pause offers temporary relief for mortgage holders, the central bank made clear that inflation remains above comfort levels. Headline inflation rose 4.2% in the 12 months to April, down from 4.6% in March, while trimmed mean inflation — the RBA’s preferred measure of underlying price pressures — rose 3.4%, still above the bank’s 2-3% target band.
Why the RBA held rates steady
In its post-meeting statement, the RBA said both headline and underlying inflation were “still too high”, despite signs of easing in oil prices, slowing consumer spending and some weakness in housing markets.
The board said financial conditions had tightened following the three rate rises already delivered this year, and there were signs the economy was slowing as expected.
However, it also pointed to continuing price pressures from elevated energy and commodity costs, as well as signs some businesses facing higher input costs were raising prices or preparing to do so.
The labour market has also softened, with unemployment rising from 4.3% in March to 4.5% in April, its highest level since November 2021. Even so, the RBA said other labour market indicators remained resilient.
The board said it was appropriate to hold rates steady while assessing “the response to previous interest rate rises and the impact of the oil supply disruption”.
Bullock-led board keeps tightening bias alive
Governor Michele Bullock and the RBA board retained a clear tightening bias, saying the central bank remained focused on ensuring inflation did not become embedded once the impact of higher oil prices passed through the economy.
Growth in demand needed to slow further to reduce capacity pressures and help return inflation to target.
“The board remains focused on ensuring that inflation does not get embedded once the impulse from higher oil prices has passed through,” the bank said.
“[The board] will do what it considers necessary to achieve [price stability and full employment], including increasing the cash rate target further if required.”
KPMG chief economist Dr Brendan Rynne said mortgage holders would likely welcome the pause but warned it may be short-lived.
“We can expect at least another hike this year, most likely in August, in order to bring core inflation back down to the mid-point of the RBA’s target band,” Rynne said.
Deloitte Access Economics partner Stephen Smith said the RBA was caught between inflation that remains too high and an economy that is clearly losing momentum.
“The next move is more likely to be up than down, making today’s decision a pause rather than a pivot,” Smith said.
Easing bias unlikely without inflation progress
Pitcher Partners chief investment officer Cameron Curko said the RBA had held rates at 4.35% while continuing to emphasise inflation risks linked to the oil shock from the Iranian conflict.
“The Board was at pains to emphasise its ongoing concerns with inflationary pressures with the oil crunch associated with the Iranian conflict still feeding through into the broader economy,” Curko said.
He said the RBA appeared content to pause while it assessed the combined effect of the ceasefire and the three rate hikes already implemented this year.
Looking ahead, the path to avoiding further rate increases may require weaker economic conditions.
“There needs to be more economic pain in the form of slower growth or higher unemployment to head off the risk of further hikes,” Curko said.
He noted core inflation was still above 3% in the year to April and warned that spillover effects from the conflict could continue into May.
According to Curko, the RBA would remain highly data-dependent in the months ahead and that an easing bias was unlikely until inflation showed meaningful signs of deceleration.
He said the recent US/Iran peace deal could help, but only if several conditions held, including no escalation in Lebanon and decisive progress on Iranian nuclear proliferation. A more likely trigger for a shift, he said, could be broader economic weakness linked to slowing credit growth and possible tax reform in the Federal Budget.
Resilient but cautious labour market
Hays APAC CEO Matthew Dickason said the RBA’s decision to hold rates aligned with conditions in the labour market, where demand for workers remained intact but hiring decisions were becoming more selective.
“After three consecutive rate hikes, today’s decision to leave the cash rate unchanged reinforces what we're seeing in the labour market,” Dickason said.
“Conditions remain resilient, but employers are continuing to hire cautiously amid ongoing economic uncertainty.”
Dickason pointed to recent ABS data showing job vacancies rose in March compared with the previous quarter, while the Hays Salary Guide FY26/27 found 58% of employers expected to increase headcount over the next 12 months.
This suggests worker demand is holding up overall, even as employers prioritised flexibility through freelance and contract roles.
For professionals, Dickason said caution was also evident. Hays research found 38% were planning no career changes over the next 12 months, despite half feeling underpaid.
“That means employers may need to work harder to attract talent even as hiring activity continues, while for jobseekers, opportunities remain available, particularly in areas facing ongoing skills shortages,” he said.
Mortgage holders get relief, but pressure remains
Today's pause gives borrowers temporary breathing space after the year’s earlier rate increases.
Since February, the RBA’s three rate hikes have added nearly $300 to monthly repayments on an average $600,000 mortgage.
Finder data showed 40% of homeowners were already struggling to meet repayments in May, up from 35% in January.
Markets had priced in a 64% chance of another rate rise by February 2027 ahead of the decision, while still expecting rate cuts further out, with near certainty of a cut by November next year.