Reserve Bank of Australia Keeps Cash Rate at 4.35% With Tightening Bias

The Reserve Bank of Australia has kept its cash rate target at 4.35%, having raised borrowing costs three times earlier in 2026 in response to the energy shock triggered by the Middle East conflict. Minutes and recent official commentary underscored persistent concern that inflation remains above the bank's 2-3% target band, with underlying pressures expected to intensify. Headline inflation eased to 4.0% in May as some fuel costs fell, but the closely watched trimmed-mean core measure accelerated to 3.6% as firms passed on higher costs. Policymakers pointed to widespread labour-cost strains and subdued household and business sentiment, even as some activity data suggested a cooling economy. The board signalled that further tightening remains possible, arguing that restrictive policy and elevated oil prices could help temper demand and rebalance the economy, while stressing that decisions will depend on incoming data. Assistant Governor Sarah Hunter recently cautioned that central banks cannot always look through supply shocks, warning that if inflation expectations become unanchored, restoring stability could require a period of weaker growth and higher unemployment.