RBA keeps the Cash rate unchanged at 4.35%, as expected, while it stated that inflation is still elevated and risks are skewed to the upside, but noted financial conditions appear to somewhat restrictive and trims CPI forecasts
- Today’s policy decision was unanimous.
- Board will remain attentive to incoming data and the evolving assessment of the outlook and risks when guiding its decisions.
- Board remains focused on preventing high inflation from becoming entrenched.
- Board continues to focus on ensuring high inflation does not become embedded.
- Board will continue to do what it considers necessary to return inflation sustainably to target, including raising the cash rate further if upside risks materialise.
- While the Middle East conflict has had a smaller-than-expected impact on inflation so far, headline inflation remains too high.
- Outlook for the Middle East conflict remains uncertain, with scenarios in which inflation is higher and activity weaker than forecast.
- Inflation rose materially in H2 2025, with information since the start of this year confirming that part of the increase reflected greater capacity pressures.
- Inflation remains too high.
- Trimmed mean inflation also remains elevated and is little changed from the March quarter.
- Inflation is not expected to return to around the midpoint of the target range until late 2027, with upside risks to that projection.
- Short-term inflation expectations have eased but remain above levels seen earlier in the year.
- Labour-market leading indicators suggest only limited easing in the near term.
- With monetary policy judged to be somewhat restrictive, the Board left the cash rate target unchanged while assessing how the economy develops.
- Following three increases in the cash rate target since the start of the year, financial conditions are now tighter than previously and the economy appears to be slowing as expected.
Hawkish holds of this kind, where the board keeps an explicit tightening bias while trimming its inflation forecasts, have tended to mark the transition phase of a cycle rather than its end: the policy rate is judged restrictive enough to sit, but the reaction function remains conditional on the upside risks to inflation, which keeps the hiking option alive rather than closing it. The notable internal tension is between a still-elevated trimmed mean, a return to target projected only far into the forecast horizon, and language acknowledging conditions are now somewhat restrictive after recent increases; central banks in this position have historically framed it as an extended pause with a high bar for both directions, and the front end has typically repriced more on the quarterly CPI prints than on the statements themselves. The attribution of part of the recent inflation pickup to capacity pressures, rather than purely imported or energy-driven factors, is the detail that matters for persistence, since demand-side inflation is what has kept tightening biases in place elsewhere. Reference to Middle East scenarios with higher inflation and weaker activity is standard risk-accounting, not a baseline shift, though it flags the supply-shock channel through which an energy-driven impulse could test the board's tolerance. The follow-ons are the next trimmed mean release, the meeting minutes for how close the hike debate came, and any pushback from officials on market pricing of the pause. Unanimity and the retained 'raising further' clause keep the bias asymmetric.