The Reserve Bank of Australia held its benchmark interest rate at 4.35 percent for the second consecutive meeting on Tuesday, citing persistent inflation that the central bank’s own forecasts now show will not return to the target midpoint until early 2028.
SYDNEY, August 12 — The Reserve Bank of Australia held its benchmark interest rate at 4.35 percent for the second consecutive meeting on Tuesday, citing persistent inflation that the central bank’s own forecasts now show will not return to the target midpoint until early 2028.
The decision, made unanimously by the RBA’s monetary policy committee, signals that the cost of borrowing in Australia will not ease in the near term despite a partial moderation in headline inflation. The Australian Bureau of Statistics reported that the consumer price index fell from 4.0 percent in May to 3.8 percent in June — still well above the central bank’s 2–3 percent target band.
“The Board remains committed to ensuring that high inflation does not become entrenched,” the RBA said in a statement, retaining language that leaves the door open to further tightening. Markets responded by trimming expectations of an additional 2026 rate increase; the policy-sensitive three-year Australian government bond yield fell two basis points after the announcement, while the Australian dollar weakened 0.2 percent.
The decision places Australia in tighter alignment with the U.S. Federal Reserve, which has held rates at its last five meetings even as three dissenters have voted for hikes. RBA Governor Michele Bullock, in updated quarterly forecasts released alongside the rate decision, projected that both headline and underlying inflation will only reach the 2.5 percent target midpoint by early 2028.
A geopolitical overlay hangs over the outlook: Bank of America–cited analysts note that the ongoing Middle East conflict has pushed global energy prices higher and injected new uncertainty into Australia’s commodity-driven growth model. “We are caught between external price pressure and the need to sustain domestic activity,” said Brendan Rynne, chief economist at KPMG Australia. “The next move depends on data we don’t yet have.”
The decision has political resonance. Treasurer Jim Chalmers, the country’s senior finance minister, said the path back to target inflation depends on a resolution of the Middle East crisis, while Shadow Treasurer Angus Taylor framed the rate hold as evidence that the government has not managed the cost-of-living crisis.
Industrial production, mining investment, and household consumption will now respond to an interest-rate environment that has held above 4 percent for most of 2026 — a level historically associated with stretched household balance sheets and slowing residential construction in Australia.