RBA cash rate decision

At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent.

Inflation picked up materially in the second half of 2025, and information since the beginning of this year confirms that some of the increase reflected greater capacity pressures. rewrittenThe latest data show that headline and underlying inflation are still too high.While the impact of the Middle East conflict on inflation has so far been less than expected, headline inflation is still too high. Trimmed mean inflation also remains elevated and is little changed from the March quarter. Oil prices have eased in recent weeks, although energy and most related commodity prices remain higher than they were prior to the conflict in the Middle East. East conflict. There are signs that some Some firms experiencing cost pressures are increasing the prices of their goods and services and others are looking to do so. Short-term measures of inflation expectations have eased but remain higher than earlier in the year.

Financial conditions have tightened this year in response to three increases in the cash rate target. target this year. Money market interest rates and government bond yields have risen, and the exchange rate has appreciated. rewrittenThe unemployment rate was higher than expected in April, but other measures of labour market conditions have been more resilient. Growth in business investment is strong and credit is readily available to both households and businesses.There are signs that consumer spending growth is slowing gradually as expected, while growth in business debt and investment is strong. There are signs that growth in consumer spending is slowing as expected and momentum Momentum in the housing market has shifted, with housing prices falling in some capital cities. cities and new housing loans declining noticeably. newLabour market conditions have eased by a little more than expected in recent months. Labour market leading indicators point to only limited easing in the near term.

There continue to be heightened uncertainties about the outlook for domestic economic activity and inflation. Resolution of the conflict in the Middle East is at an early stage, conflict remains uncertain, and there are plausible scenarios where inflation is higher and activity lower than envisaged under the May baseline forecasts. forecast. Global oil supply issues will take some time to resolve, recover, maintaining upward pressure on global energy prices and inflation. inflation, in which case domestic inflationary pressures could be higher than expected. At the same time, a A period of prolonged uncertainty may also cause growth to be lower in Australia’s major trading partners overseas and in Australia. newSo far, growth in Australia’s major trading partners has been stronger than expected, as the boost from AI-related investment has outweighed the adverse effects of the Middle East conflict. In Australia, historically weak productivity growth continues to constrain potential growth.

Decision

Higher fuel prices have added The disruption to global oil supply is adding directly to inflation and there are indications that this is passing higher fuel prices are being passed through to the prices of other goods and services, so inflation is likely to remain high for some time. This inflation impulse is in addition to the high inflation recorded around the start effect of 2026, reflecting capacity pressures in the economy. removedAs expected, the disruption to global oil supply is having an impact on inflation.

The Board remains focused on ensuring that high inflation does not become embedded once the impulse from higher oil prices has passed through. embedded. To achieve this, growth in aggregate demand needs to slow remain subdued to reduce capacity pressures and help bring inflation back to target. Following the three increases in the cash rate target since the beginning of the year, financial conditions are now tighter than they were, and there are signs that the economy is appears to be slowing as expected. rewrittenBut inflation is still too high and the Board judged that it was appropriate to leave the cash rate target unchanged while it assesses the response to previous interest rate rises and the impact of the oil supply disruption.But inflation is still too high. It is not expected to return to around the midpoint of the target range until late 2027 and there are upside risks to this projection. With monetary policy judged to be somewhat restrictive, the Board decided to leave the cash rate target unchanged while it assesses how the economy is evolving. It The Board will continue to do what it considers necessary to achieve that outcome, bring inflation sustainably back to target, including increasing the cash rate target further if required. upside risks materialise. moved

The Accordingly, the Board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions. Monetary policy is well placed to respond to developments and the Board is focused on its mandate to deliver price stability and full employment. removedIn doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand and the outlook for inflation and the labour market.

Today’s policy decision was unanimous.