RBA keeps the Cash rate unchanged at 4.35%, as expected, while it stated that inflation is still elevated and risks are skewed to the upside, but noted financial conditions appear to somewhat restrictive and trims CPI forecasts

Today’s policy decision was unanimous. Board will remain attentive to incoming data and the evolving assessment of the outlook and risks when guiding its decisions. Board remains focused on preventing high inflation from becoming entrenched. Board continues to focus on ensuring high inflation does not become embedded. Board will continue to do what it considers necessary to return inflation sustainably to target, including raising the cash rate further if upside risks materialise. While the Middle East conflict has had a smaller-than-expected impact on inflation so far, headline inflation remains too high. Outlook for the Middle East conflict remains uncertain, with scenarios in which inflation is higher and activity weaker than forecast. Inflation rose materially in H2 2025, with information since the start of this year confirming that part of the increase reflected greater capacity pressures. Inflation remains too high. Trimmed mean inflation also remains elevated and is little changed from the March quarter. Inflation is not expected to return to around the midpoint of the target range until late 2027, with upside risks to that projection. Short-term inflation expectations have eased but remain above levels seen earlier in the year. Labour-market leading indicators suggest only limited easing in the near term. With monetary policy judged to be somewhat restrictive, the Board left the cash rate target unchanged while assessing how the economy develops. Following three increases in the cash rate target since the start of the year, financial conditions are now tighter than previously and the economy appears to be slowing as expected. Statement on Monetary Policy Financial conditions in Australia appear somewhat restrictive. Inflation remains elevated, with risks tilted to the upside. Inflation forecasts were lowered, while unemployment is expected to be slightly higher. Economy is expected to return to balance in 2027, a little earlier than previously forecast. Assumption for potential economic growth was revised slightly higher due to population growth. GDP forecasts were nudged higher on stronger business investment and population growth. Labour market remains somewhat tight, seen stable in the near term before gradually easing. Global growth outlook was revised higher due to the AI boom and resilience to the Gulf conflict. Forecasts GDP growth seen at 1.4% (prev. 1.3%) in Q4 2026, 1.6% (prev. 1.4%) in Q4 2027 and 1.8% in Q4 2028. CPI inflation seen at 3.6% (prev. 4.0%) in Q4 2026, 2.6% (prev. 2.4%) in Q4 2027 and 2.4% in Q4 2028. Trimmed mean inflation seen at 3.3% (prev. 3.5%) in Q4 2026, 2.6% (prev. 2.6%) in Q4 2027 and 2.4% in Q4 2028. Trimmed mean inflation is expected to remain above 3% until mid-2027, returning to 2.5% by early 2028. Unemployment seen at 4.5% in Q4 2026, 4.7% in Q4 2027 and 4.8% in Q4 2028. Forecasts assume a cash rate of 4.4% in Q4 2026, 4.5% in Q4 2027 and 4.4% in Q4 2028.