RBA announces first cash rate decision since budget

The decision to hold the official cash rate at 4.35 per cent marks the first rate hold of 2026, following three consecutive increases by the Reserve Bank of Australia (RBA) in its effort to curb persistent inflationary pressures.

The RBA unanimously voted to leave the cash rate unchanged, saying that it would assess the impact of its three rate hikes this year rather than tighten policy further.

In the 12 months to April 2026, the consumer price index (CPI) rose 4.2 per cent, down from 4.6 per cent in the year to March. Trimmed mean inflation, however, rose to 3.4 per cent over the same period, up from 3.3 per cent in March. The RBA’s target inflation rate is 2-3 per cent.

The decision was also marked by an uncertain global economic background, as the conflict in the Middle East continues to weigh on fuel prices and consumer and business sentiment.

The last time the cash rate sat at 4.35 per cent, it remained unchanged for more than a year, after the RBA lifted it to that level in November 2023 and held it there until February 2025.

Brokers have flagged that borrowers and investors are becoming more cautious, with many delaying decisions and reassessing their finances in response to higher rates, inflation and policy uncertainty.

Rate hold reasoning

The Reserve Bank of Australia unanimously voted to leave the cash rate unchanged at 4.35 per cent, opting to assess the impact of its three rate hikes this year rather than tighten policy further.

The monetary policy board said that while financial conditions have become more restrictive and there are signs the economy is beginning to slow, inflation remains "too high" and continues to pose a risk to the bank's price stability mandate.

It also added that there were signs the heightened fuel prices were passing through to other goods and services.

"The board remains focused on ensuring that inflation does not become embedded once the impulse from higher oil prices has passed through. To achieve this, growth in demand needs to slow to reduce capacity pressures and help bring inflation back to target," the board said in a statement.

"The board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions. In 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."

In the post-rate briefing, RBA governor Michelle Bullock hinted that the tightening cycle may not be over yet, and that inflation remained too high for comfort.

Calls for mortgage health checks

Both the Mortgage and Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA) argued that the decision reinforces the importance of reviewing lending arrrangements.

MFAA CEO Anja Pannek said while many were hoping for cuts, a period of certainty would help borrowers track a more confident trajectory.

“Following significant interest rate movements over recent years, today's decision provides borrowers with an opportunity to assess their financial position and consider whether their current loan remains competitive,” Pannek said.

“While the cash rate has remained unchanged, competition among lenders remains strong and there may still be opportunities for borrowers to secure a better outcome through refinancing or repricing.”

Following market share surpassing 80 per cent, Pannek added that brokers would continue to play an important role in helping Australian navigate the world of lending.

“More than four in five Australians now choose a mortgage and finance broker when arranging a home loan because brokers provide choice, competition and personalised guidance.”

“The role of mortgage and finance brokers extends well beyond securing a competitive interest rate. They help clients understand their options, improve their financial literacy and make informed decisions based on their individual circumstances.”

Peter White AM, spokesperson for the FBAA, also urged brokers to encourage clients to review their lending arrangements, warning many borrowers could be vulnerable to "rate creep".

"Many Australians are unknowing victims of ‘rate creep’, where lenders raise rates for existing customers while offering discounted rates to new borrowers. This means you could be paying more in repayments than you should be," he said.

"It’s a competitive lending market and many borrowers are unaware they can approach their lender and ask for a rate reduction. If the lender won’t do this – and many will not as they assume you won’t leave – ask a mortgage broker to look at the market and assess your situation and the options available."

What's next?

The major banks' forecasts for this month's rate decision were broadly aligned, with all four predicting a hold at the June meeting.

What is less clear, however, is what the RBA will do at its next meeting on 10–11 August and beyond.

Australia and New Zealand Banking Group (ANZ) has forecast another hold in August, followed by an extended period of stable rates.

The bank then expects the cash rate to begin moving lower in the second half of 2027, forecasting two 25-basis-point cuts.

Economists at Commonwealth Bank of Australia (CBA) have also forecast the cash rate to remain unchanged for an extended period before two cuts in May and August 2027.

Westpac remains the most hawkish of the major banks for the remainder of this year.

"The RBA faces a difficult set of trade-offs in its near-term monetary policy decisions. As well as the more benign developments in energy prices and the conflict more broadly, some domestic data releases have been softer than generally expected," the bank said.

As a result, Westpac has forecast two further rate hikes at the August and September meetings.

Having initially been the only major bank forecasting a hike at the next meeting, NAB revised its outlook on 9 June, stating that the cash rate has likely reached the peak of the tightening cycle.

"The next move in the cash rate is likely to be down, but the timing is uncertain. To reflect shifting risks to the RBA outlook, we have brought forward our expected easing cycle from the second half of 2027 to the second quarter of 2027, which would see the cash rate end 2027 at 3.6 per cent," the bank said.

[Related: Broking’s road to dominance and what comes next]

Want to see more stories from trusted news sources?
Make Broker Daily a preferred news source on Google.