Reserve Bank of Australia holds cash rate steady but warns of future hikes

On August 10, 2026, the Reserve Bank of Australia (RBA) announced its decision to maintain the official cash rate at 4.35%. This decision followed three rate hikes earlier in the year, and the RBA indicated that it would consider further increases if necessary. The board noted that the economy appears to be slowing as anticipated, with falling house prices contributing to a slowdown in income growth. The RBA's statement emphasized its commitment to bringing inflation back to target, suggesting that it remains vigilant about potential upside risks that could necessitate further rate hikes.

The RBA's decision was widely expected by economists and financial markets, who had predicted no change following the recent two-day board meeting. Stephen Smith, a partner at Deloitte Access Economics, interpreted the RBA's statement as an indication that the bank might feel its job is nearing completion. Despite the warning of potential future hikes, financial markets reacted by betting against another rate rise in the immediate aftermath of the announcement.

Treasurer Jim Chalmers welcomed the RBA's decision, describing it as a relief for Australians with mortgages amid global economic uncertainty. The RBA also released new forecasts, predicting that economic growth would stabilize at around 1.4% by 2026. However, the forecasts included a significant drop in home prices, with predictions of at least a 5% decline from their peaks earlier in the year. Major cities like Sydney and Melbourne are expected to see even steeper declines of 14.5% and 12.8%, respectively.

The RBA's assessment highlighted the impact of federal budget tax reforms, which are projected to contribute to a long-term decrease in house prices. Additionally, the RBA reported a notable decline in investor loan commitments and a 20% drop in home loan applications since mid-May, attributing this to rising interest rates. As the housing market cools, some banks have begun reducing advertised mortgage rates, reflecting strong competition and efforts to maintain market share. The RBA anticipates that a recovery in house prices, coupled with falling interest rates, could lead to an increase in per person economic activity by 2028. Service industries, particularly hospitality, continue to face rising costs due to a tight labor market, adding pressure on businesses.