Rates Hold at 4.35% as the RBA Waits for Inflation to Ease
At its 11 August meeting, the Reserve Bank of Australia left the cash rate unchanged at 4.35%. The decision was unanimous. It follows three increases this year totalling 75 basis points, which the Board says have tightened financial conditions.
Inflation remains the focus. The Board said headline inflation is still too high, while trimmed mean inflation remains elevated and little changed from the March quarter. Capacity pressures in the economy are still contributing to price growth. Oil and related commodity prices remain higher than they were before the Middle East conflict, and some businesses facing cost pressures are passing those increases through to customers.
There are signs the tighter settings are working. Consumer spending growth is slowing gradually, as the Board expected. Housing prices have fallen in some capital cities, new housing lending has declined noticeably, and labour market conditions have eased by a little more than expected in recent months. Business debt and investment growth, though, is still strong.
With policy judged to be somewhat restrictive, the Board chose to hold while it assesses how the economy is evolving. But it kept the door open. It said it will do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate further if upside risks materialise. Inflation isn’t expected to return to around the midpoint of the target range until late 2027, and the Board flagged upside risks to that projection. This is a pause, not a change of direction.
Key Takeaways:
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- Cash rate: Held at 4.35% at the 11 August 2026 meeting. The decision was unanimous.
- Inflation: Headline inflation is still too high and trimmed mean inflation remains elevated, little changed from the March quarter. The Board said some of the recent lift reflects greater capacity pressures in the economy.
- Global risks: Oil and related commodity prices remain above pre-conflict levels. Global oil supply will take time to recover, keeping upward pressure on energy prices and inflation.
- Financial conditions: Tighter following three increases this year, with money market rates and government bond yields higher and the exchange rate appreciated.
- Housing and lending: Momentum has shifted, with housing prices falling in some capital cities and new housing loans declining noticeably.
- Labour market: Conditions have eased by a little more than expected, though leading indicators point to only limited further easing in the near term.
- Policy stance: Monetary policy is judged to be somewhat restrictive. The Board retains a tightening bias and will increase the cash rate further if upside risks materialise.
- Outlook: Inflation isn’t expected to return to around the midpoint of the 2 to 3% target range until late 2027, with upside risks to that projection. The Board remains data-dependent.
(Source: RBA)
Rate Expectations
(Source: ASX RBA Rate Tracker)
On the 11th of August the RBA left the official cash rate unchanged. The current official cash rate as determined by the Reserve Bank of Australia (RBA) is 4.35%.
The next RBA Board meeting and Official Cash Rate announcement will be on the 29th September 2026.
As at the 11th of August, the ASX 30 Day Interbank Cash Rate Futures September 2026 contract was trading at 95.65, indicating a 0% expectation of an interest rate decrease to 4.10% at the next RBA Board meeting.
Inflation
(Source: RBA, ABS)
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- Headline Inflation: Australia’s CPI rose 3.8% over the 12 months to June 2026, easing from 4.0% in May. In the month of June alone, the CPI fell 0.1%. Headline inflation is moving in the right direction, but it’s still sitting above where the RBA wants it.
- Underlying Inflation: Trimmed mean inflation was 3.6% annually, unchanged from May. Trimmed mean strips out the largest price movements in either direction, which makes it a cleaner read on underlying pressure, and it hasn’t shifted. It remains above the RBA’s 2% to 3% target range.
- Household Inflation (CPI): The largest contributors to annual inflation were Housing, up 6.8%, Food and non-alcoholic beverages, up 3.3%, and Recreation and culture, up 3.3%. Housing accelerated from a 6.5% rise in May, driven by electricity, up 22.4% following the ending of Commonwealth and state government electricity rebates, new dwelling prices, up 5.8%, and rents, up 3.6%.
- Automotive fuel: Fuel was the main offsetting pressure in the Transport group, falling 7.3% over the year and 10.9% in June alone, following a 11.9% fall in May. The ABS attributes the monthly falls to lower world oil prices, with federal fuel excise relief measures also remaining in place through June.
- RBA Stance and Outlook: The RBA remains concerned that inflation is still too high and likely to stay high for some time, with higher fuel prices showing signs of passing through to other goods and services. Short-term measures of inflation expectations have eased, though they’re still above where they sat earlier in the year. The Board doesn’t expect inflation to return to around the midpoint of its target range until late 2027, and it has flagged upside risks to that projection.
Property Market Update
(Source: Cotality August HVI)
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- National home values fell in July, with Cotality’s national Home Value Index down 0.7% over the month, its largest single-month decline since December 2022. Over the year, national dwelling values were up 5.3%. The capital cities combined fell 0.9% and regional areas fell 0.2%, the first regional decline since January 2023.
- The downturn has widened beyond Sydney and Melbourne. Brisbane and Adelaide recorded their second consecutive month of decline, down 0.6% and 0.2%, while Canberra fell 1.0%. Sydney and Melbourne remained the weakest markets, falling 1.4% and 1.2% respectively. Only three capitals rose: Darwin up 0.8%, with Perth and Hobart both up 0.1%.
- The falls are concentrated at the top of the market. The most expensive quarter of homes fell 3.2% in value nationally over the three months to July, while the most affordable quarter rose 0.3%. Annual results remain widely split, from Perth up 20.5% to Melbourne down 2.8%.
- Cotality noted that the pressures on buyers have broadened, citing affordability, the three rate rises this year totalling 0.75% and the reduced borrowing capacity that comes with them, higher fuel costs and weak consumer confidence, which it links to the conflict in the Middle East and the May Federal Budget changes. Homes are also taking longer to sell, with the number advertised for sale across the capitals now 5.7% above average, while fewer than half the properties taken to auction have sold since late May.
Rental Market Update
(Source: Cotality August HVI)
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- Rents keep rising: Cotality’s national rental index rose 0.4% in July. Annual growth held at 5.9%, around $40 a week added to the national median rent over the past year.
- Vacancy rates remain tight: The national vacancy rate edged up to 1.7% in July, still well below the ten-year average of 2.4%.
- Growth is uneven: Darwin led at 10.4% annually, followed by Perth at 8.1% and Hobart at 8.0%. The Australian Capital Territory was weakest at 3.3%.
- Yields are climbing: The national gross rental yield reached 3.7%, with capital city yields at 3.6% and regional yields at 4.2%. Capital city yields are at their highest since August 2019, as rents rise while home values fall.
What this means if you’re a borrower
A cash rate hold doesn’t automatically mean your current home loan is still a good deal. Lenders can change their pricing independently of the RBA, which means the rate available in the market today may be different from the one you’re currently paying.
For variable rate borrowers, now is a good time to check whether your rate is still competitive rather than assuming nothing has changed because the cash rate hasn’t moved. Your options will depend on your loan, lender and circumstances, but reviewing your position can help you understand whether there’s a stronger structure or rate available.
If you’re approaching the end of a fixed-rate period, it’s also worth reviewing your options before the fixed term expires. Knowing what rate you’ll revert to and what alternatives may be available gives you more time to make an informed decision.
For buyers, refinancers and investors, borrowing capacity and repayment servicing remain important considerations in the current environment. Getting your structure and finance position clear before making a move can put you in a better position to assess your options.
Don’t assume a hold means your home loan should stay untouched. Check where your rate sits against the market and whether your current structure still makes sense.
Talk to the Azura team to review your loan and see what more competitive options could look like for you.
