RBA holds cash rate at 4.35% after three consecutive interest rate hikes

“After the explosion of the budget hand grenade and the shock of so many interest rate rises, this is welcome news,” says Angus Raine, executive chairman of Raine & Horne Group.

“With inflation easing and the economy slowing, this was the best decision.

“We’ve seen open for inspection numbers and clearance rates down, and listings tight with vendors skittish. This will get rid of some of the uncertainty in the market, and allow people to sit down and plan.”

The board’s decision was unanimous and in a press conference held afterwards, RBA governor Michele Bullock revealed no one considered raising interest rates this month.

However she would not rule out further hikes: “I’d say the board is still concerned … and if we need to increase rates again, we will. I think the board feels now that were in a better position than we were in at the beginning of the year, when interest rates were three quarters of a percentage point lower.”

“Monetary policy is well placed to respond to developments and the Board is focused on its mandate to deliver price stability and full employment. It will do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required,” the statement said.

No one should become too comfortable, warns Westpac chief economist Luci Ellis.

Annual inflation is at 4.2 per cent, and the 3.4 per cent trimmed mean core rate is still above the RBA’s target range, while unemployment remains at 4.3 per cent.

“Inflation is still too high, and there is another wave coming through with higher energy prices from the conflict in the Middle East being passed through to the cost of other goods and services,” Ellis says.

“If our forecasts are right, the RBA will be unpleasantly surprised and will have to do more to counter it.

“We’re expecting two more rate rises soon, and while some people are saying the RBA has probably done enough, they are very focused on the inflation risk and the need to moderate it.

“While people don’t want too much volatility in the market, and confidence is weak and demand is lower, they still want to get inflation down to their target band of 2 to 3 per cent.”

But Westpac is currently out on its own amongst the big four banks – ANZ, CBA and NAB all now predict interest rates have peaked and will stay on hold until the RBA starts cutting in 2027.

NAB scrapped its previous expectation of another rate hike one week ago, while ANZ also revised its forecast, and CBA has forecast two rate cuts of May and August 2027.

“The next move in the cash rate is likely to be down, but the timing is uncertain. In February, growth was above trend, the economy was operating above capacity, and there was uncertainty over the restrictiveness of rates. None of these conditions exist today,” she said.

Research from Finder’s RBA Cash Rate Survey, which includes 38 economists and experts, revealed more than half of them expect at least one more hike before the end of 2026. Of those, 62 per cent see it coming as soon as August.

Richard Whitten, home loans expert at Finder, says while a pause is a welcome reprieve, homeowners can’t afford to relax just yet.

“Borrowers who have watched their monthly repayments climb this year will view this hold as a moment of calm. But we aren’t out of the woods.

“The cash rate remains at its highest level in years, and our data shows 40 per cent of homeowners were already struggling to pay their mortgage in May – up from 35 per cent in January.”

“With more than half of our panel predicting another hike is just around the corner, now is the time to act. If you haven’t haggled with your bank or looked into refinancing since the start of the year, you could almost certainly be getting a better deal,” Whitten says.

The inflation data has been mixed, however, with the latest figure of 4.2 per cent for the year to April certainly down from the March yearly rate of 4.6 per cent.

PRD chief economist Dr Diaswati Mardiasmo believes the RBA is holding fire until the release of the June quarter figure at the end of July, in time for its next meeting in August.

“They also don’t like to change the cash rate around the time of federal budget announcements so they can keep everyone on a level playing field,” she says.

“They want to provide some stability to households for at least three months so they can have the same monthly mortgage repayments.

“General business confidence has picked up a little bit, forward orders are holding, so business deals are still being made, and we’ve seen a bit of an uptick in consumer confidence.

“The property market is still slow, with buyers more cautious and price growth declining in Sydney to 2.53 per cent when it’s normally 8 to 9 per cent, and to 0.5 per cent in Melbourne, when it’s 7 to 8 per cent in the strongest market.”

That August RBA meeting is also the focus of ANZ economist Madeline Dunk, who is more optimistic that interest rates might not rise again for the rest of the year.

“The board will then have a sense of how the economy is responding to restrictive interest rates and a sense of whether they’ve done enough, and how much the second blow-through of fuel costs will add to the inflation basket,” she says.

“But we think they’ll hold at 4.35 per cent and stay set at that for the year, then cut in later 2027.

“The big things are what happens globally and the conflict in the Middle East. But domestically, activity might slow down enough that demand no longer exceeds supply and inflation moves, as a result, back towards that target band.”

Even with the cash rate hold, people will still have the jitters in the property market, says Joseph Daoud, founder of mortgage broker It’s Simple Finance, adding that buyers won’t have the confidence to buy, and vendors will remain too nervous to put their properties up for sale.

“People are still very worried about house prices and their businesses,” he says.

“Those who want to sell are nervous they’ll go into negative equity as they won’t be able to get the prices they thought they’d get when they bought, and buyers are less confident about their own position.