RBA interest rates: Reserve Bank announcement to hold rates filled with uncertainty

The good news is that after three successive rate rises, the Reserve Bank has decided not to again inflict more pain on borrowers, well not just yet.

Within minutes of the RBA’s announcement on Tuesday that the official cash rate would remain on hold at 4.35 per cent for now, the Treasurer was fronting TV cameras trying to sound as positive as the circumstances would allow.

“It doesn’t make life any easier for people, but it doesn’t make life harder either,” Jim Chalmers told reporters.

“This is the first interest rate decision since the very responsible budget that we handed down not that long ago, and since then we’ve seen some very welcome developments in the Middle East as well.

“In Australia, we’ve seen inflation come off a bit, but we still know that those inflationary pressures are there, made worse by the war in the Middle East and its aftermath,” Chalmers added.

As the war against Iran looks to be ending, it appears that only fears of bringing on a recession in Australia has stopped the Reserve Bank from again hiking interest rates this month.

Bringing down the country’s stubbornly high inflation is proving much harder than the Albanese government had hoped, and RBA Governor Michele Bullock is warning more tough medicine could be needed after already lifting the cash rate by 75 points this year.

“Leaving rates on hold today will allow the board to assess how these previous increases are flowing through the economy,” she told reporters in Sydney on Tuesday.

“I want to be very clear that inflation remains too high.”

A deal to end the war between the United States and Iran is expected to be inked on Friday, but for weeks the government and experts have warned that cost pressures in the economy will take much longer to ease.

Governor Michele Bullock is also warning homeowners that peace in the Middle East won’t necessarily mean interest rate relief anytime soon.

“If the conflict does end and the Strait of Hormuz is reopened, this should support the flow of commodities and lower prices but this could take some time and an orderly resolution is still not assured meaning there are still upside risks to inflation and downside risks to growth.”

Major Australian lenders CBA, ANZ and NAB are still forecasting no more rate hikes in 2026 and the prospect of some relief next year, but Westpac chief economist Luci Ellis warns more pain could come at the next RBA meeting.

“We therefore retain our view that further cash rate increases are coming. If we are right that the June quarter result for trimmed mean inflation will again be strong, the next hike will come at the August meeting.”

“A longer pause is possible if the next few inflation prints are less alarming, but the direction of travel is still most likely up,” Ms Ellis warns.

The interbank futures market also sees one more hike in 2026, which if it occurs would take the RBA’s cash rate to a 15-year high of 4.6 per cent.

Politically there is also a persistent sense of grumpiness and general discontent among voters that continues to harm the government’s standing, and boost support for Pauline Hanson’s One Nation party.

Labor insiders are hopeful that support for the government will begin to return when interest rates and the cost of living begin to fall.

But at this stage neither of those outcomes is a certainty, and predicting what could occur after this week’s signing of a Middle East peace deal is just as difficult.