RBA holds rates steady, leaves door open to more hikes

The result was widely expected by economists and money markets.

While the re-escalation in the Middle East conflict has sent oil prices surging once more, softer-than-expected inflation figures in late July killed off expectations of an August rate hike.

Both headline and underlying inflation remained above the RBA's 2-3 per cent target range in the June quarter.

But at 3.6 per cent, the bank's preferred quarterly trimmed mean measure undershot its previous forecast of 3.8 per cent and gave the board more breathing room to watch how developments played out in the Strait of Hormuz.

"Following three increases in the cash rate target since the beginning of the year, financial conditions are now tighter than they were and the economy appears to be slowing as expected," the RBA board said in its accompanying statement.

"But inflation is still too high."

Economic forecasts released by the bank at the same time as its rate decision showed the RBA still expected inflation to remain above 2.5 per cent until early 2028.

Inflation risks were also skewed to the upside, the bank said in its statement on monetary policy.

If the conflict in the Middle East disrupts oil markets further, the global AI investment boom spurs stronger demand for technology supply chains or El Niño drives up food prices worse than expected, inflation could exceed the bank's forecasts.

But if the housing market deteriorates faster than expected, that could weigh on household consumption and take more steam out of the economy.

House prices were already starting to come down after the RBA's three rate rises in the first half of 2026, which together added around $270 a month in repayments for a $600,000 mortgage.

But the downturn has accelerated since the federal budget curbed tax concessions for property investors.

While seemingly comfortable with where rates are at the moment, the board left the door open to further hikes.

"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 said. 

"The board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if upside risks materialise."

Following the decision, the ASX200 had a brief, modest spike and was up 38 points, or 0.41 per cent for the day.

The Aussie dollar dropped slightly against the US currency.

Treasurer Jim Chalmers said it was a "welcome decision at a time of heightened uncertainty in the world and persistent pressures at home".

"This decision reflects the fact that inflation has been coming in well under the Reserve Bank and Treasury forecasts," he said.

"Inflation has now moderated three months in a row but it's still higher than we'd like and people are still under pressure."