RBA Holds Rates at 4.35% on August 11, Signals More Hikes Possible

The Reserve Bank of Australia left the cash rate at 4.35% on August 11 in a unanimous decision, pausing after three hikes earlier this year. The board warned that inflation at 3.8% remains above its 2 to 3 per cent target and will not return to target until late 2027, signalling it will raise rates again if upside risks emerge. For Australian mortgage holders, the hold offers temporary relief, but the RBA’s hawkish stance suggests rate cuts remain distant.

Why the RBA paused today

Inflation has eased from its peak but remains elevated at 3.8% in the year to June. The board cited three rate hikes already delivered this year, which have tightened financial conditions and begun to slow consumer spending. Housing prices have fallen in Sydney and Melbourne and are now declining in Brisbane, Perth and Adelaide, signalling the cumulative impact of higher rates on household finances.

The threat of more rate rises

The RBA’s statement made clear it will raise rates further if inflation risks worsen. The board flagged that Middle East conflict uncertainty could keep oil prices elevated, maintaining upward pressure on global energy prices and domestic inflation. Stephen Smith, a partner at Deloitte Access Economics, said the statement suggested the RBA increasingly feels its job may be done, but another rate rise in 2026 cannot be ruled out.

What this means for Australian households

The June quarter cost of living for working households rose 1.5%, driven overwhelmingly by higher mortgage payments. RBA Governor Michele Bullock has acknowledged that rate rises hit homeowners harder in Australia than in most other countries because of high housing debt and limited housing supply. While today’s hold provides breathing room, economist Chris Richardson argues there may be alternative levers to fight inflation that do not fall so heavily on mortgage holders.

Market reaction and next steps

Financial markets moved to price in lower future rates following the decision, with the Australian dollar and bond yields falling. Australia’s major banks are now predicting rates will hold until next year. The RBA’s next meeting is scheduled for September 28 and 29, when it will reassess inflation data and economic conditions before deciding whether to hold, raise or cut rates.

Final Thoughts

The RBA’s hold offers short-term relief for mortgage holders, but the board’s warning that inflation remains too high and further hikes are possible means rate cuts remain unlikely this year. Australians should prepare for rates to stay elevated through 2026.

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