Reserve Bank of Australia Holds Rates Steady but Remains Worried About Inflation

By James Glynn

SYDNEY--The Reserve Bank of Australia left interest rates unchanged on Tuesday but continued to warn that inflation remains too high, especially against the backdrop of war in the Middle East.

The RBA left the official cash rate on hold at 4.35%, in line with economists' expectations. It raised the OCR three times earlier this year, with the impact of those decisions still flowing through to the economy.

The RBA's nine-member policy-setting board voted unanimously to keep interest rates on hold.

"The board remains focused on ensuring that high inflation does not become embedded," the board said in a statement.

"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. But inflation is still too high," it added.

The RBA said it doesn't expect inflation to return to around the midpoint of its target range until late 2027, adding that there are "upside risks to this projection."

Inflation was weaker than expect in the second quarter, giving the RBA scope to pause this month, economists said. The RBA also has an eyes on falling housing prices, which could put a sizeable dent in consumer spending.

"There are signs that consumer spending growth is slowing gradually as expected...Momentum in the housing market has shifted, with housing prices falling in some capital cities and new housing loans declining noticeably," the RBA said.

Australia and New Zealand Banking Group said earlier Tuesday that it expects capital-city house prices to tumble by more than 10% in the current downturn.

The decline in dwelling prices has gathered momentum in recent months as interest rates have risen, while a decision make tax arrangements less attractive for property investors has also weighed on the market.

The war in the Middle East remains an area of concern for the RBA.

"Oil and most related commodity prices remain higher than they were prior to the Middle East conflict. Some firms experiencing cost pressures are increasing the prices of their goods and services and others are looking to do so," it said.

"Short-term measures of inflation expectations have eased but remain higher than earlier in the year," it added.

There is continued uncertainty around the Middle East conflict and the extent to which it will have second-order effects on inflation and the broader economy, said Katherine Palmer, head of fixed income at BlackRock Australia.

"We anticipate one further rate increase later this year on the basis of the RBA seeking to address the current inflation challenge and to mitigate anchoring of inflation expectations higher," she added.

Write to James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

August 11, 2026 01:17 ET (05:17 GMT)