SYDNEY — The Reserve Bank of Australia board decided on Tuesday to maintain the official cash rate target at 4.35 percent. This decision followed three consecutive interest rate increases earlier in 2026.

"There are signs that the economy is slowing as expected. But inflation is still too high and the board judged that it was appropriate to leave the cash rate target unchanged while it assesses the response to previous interest rate rises and the impact of the oil supply disruption." The board said.

The board noted that growth in demand needs to slow to reduce capacity pressures and help bring inflation back to target. "It will do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required." The board added.

Economists at ANZ, Commonwealth Bank, and NAB projected that interest rates had reached their peak and would begin to decline in mid-2027. In contrast, Westpac economists predicted the cash rate would increase in August and September, with no rate cuts scheduled until 2028.

The Australian dollar decreased from 70.54 US cents to 70.49 US cents immediately after the rate decision. The benchmark S&P/ASX 200 index increased from 8,890 points to 8,914 points during the same period.

Real gross domestic product growth recorded 0.3 percent in the March quarter, down from 0.9 percent in the December quarter of 2025. Australia's national unemployment rate reached 4.5 percent in May 2026, which was the highest level recorded since 2021. The board anticipated consumer spending to decline and expressed no concern regarding the rising unemployment rate because other labor market indicators suggested resilience.

For an owner-occupier holding a $745,000 mortgage at a typical 6 percent interest rate, monthly repayments increased from $4,114 to $4,467 following the series of rate increases earlier in the year. Treasurer Jim Chalmers said, "It doesn’t make life any easier for people but it doesn’t make life harder either."

Westpac chief economist Luci Ellis projected that inflation would peak at 4.7 percent in late 2026. She stated that higher fuel prices resulting from the conflict involving Iran, the United States, and Israel would increase freight and other costs, maintaining elevated inflation throughout 2026. "Resolution of the conflict in the Middle East is at an early stage, and there are plausible scenarios where inflation is higher and activity lower than envisaged under the May baseline forecasts." The board said. Westpac projected average petrol prices at 205 cents per litre and diesel at 239 cents per litre for the three-month period following the expiration of the government fuel excise tax reduction.