The Reserve Bank was widely tipped to hold official interest rates even before news emerged early this morning that a peace deal between the US and Iran had been signed.
With the monetary board breathing a sigh of relief that oil prices have now tumbled and the Australian economy is free of any further energy shocks - especially given the Federal Government has ruled out extending the 50 per cent fuel excise discount beyond the end of June - a pause today now seems a near certainty.
Keep up to date with everything you need to know about today’s interest rate call in the feed below.
All signs point to 2026’s rate hikes already working
Since the central bank’s May meeting, unemployment has surprisingly risen to a four-and-a-half-year high, household spending has fallen and economic growth came in a touch weaker than expected.
Meantime, while inflation is still above the top of the RBA’s 2 to 3 per cent target, recent readings showed momentum wasn’t as strong as feared.
Govenor Michele Bullock told a parliamentary panel this month that the RBA has already seen some signs that its rate hikes are starting to work through the economy, pointing to a nascent slowdown in the housing market.
She did, however, express concern about the risk of second-round inflation effects emerging from the energy shock triggered by the Iran war.
The RBA expects a sharp deceleration in economic growth over its forecast horizon through mid-2028, when it predicts headline and core inflation will return to the 2.5 per cent midpoint of its target.
Still, some economists aren’t convinced the tightening cycle is over.
Citigroup’s Josh Williamson expects the RBA to pause this month but argues the decision may carry “hawkish overtones” due to uncertainty over the inflation outlook, and continues to forecast a quarter-point hike in August.
“While recent data provides space for a temporary pause, the risk of a domestic wage-price spiral and second-order inflationary effects from the Middle East conflict suggest policy is not yet restrictive enough,” he said.
How much extra you’ll pay if there’s another hike this year
While financial market traders still see another rate rise in 2026 as a 50:50 chance, Commonwealth Bank senior economist Ashwin Clarke said the reopening of the Strait of Hormuz was likely to ease inflationary pressures.
“In the near term, the reopening in the Strait of Hormuz is expected to put downward pressure on oil prices and that should be downward pressure on inflation,” he told The Nightly.
This in turn could see the Reserve Bank cut rates twice in the second half of 2027, which would take the cash rate back to 3.85 per cent for the first time since March, undoing two of this year’s three rate rises.
“Our expectation is that the next direction will be a cut - in mid-to-late 2027,” Mr Clarke said.
“It’s a long way off and a lot can happen between now and then, there’s a lot of uncertainty around that call, but we do expect two cuts in interest rates from mid-2027.”
Break free from ‘rate creep’
Rates may not be moving today (hopefully), but that doesn’t mean homeowners should simply accept the rate they’re on, says the Finance Brokers Association of Australia.
With three rate rises this year, homeowners are already feeling the pain as savings now turn into repayments.
“Many Australians are unknowing victims of ‘rate creep’, where lenders raise rates for existing customers while offering discounted rates to new borrowers,” said association spokesman Peter White.
“This means you could be paying more in repayments than you should be.
“It’s a competitive lending market and many borrowers are unaware they can approach their lender and ask for a rate reduction. If the lender won’t do this – and many will not as they assume you won’t leave – ask a mortgage broker to look at the market and assess your situation and the options available.
“It is also important to note that brokers are legally obliged to act in your best interests, whereas lenders are not and cannot as they sell products.
“As cost of living pressures mount, there may be savings available for borrowers who are proactive.”
RBA is no ‘knight in shining armour’
The Reserve Bank will, in all likelihood, hit pause today.
But homeowners have been warned they should not expect governor Michele Bullock to come to their rescue any time soon.
During economic slowdowns, the central bank has often been the “knight in shining armour” for households, cutting interest rates when times are tough to give the economy a boost, HSBC chief economist Paul Bloxham said.
A sluggish GDP print for the March quarter and rising unemployment suggest Australia is already in a downswing.
But while he predicted no more hikes from the Reserve Bank this cycle, mortgage holders were unlikely to receive any rate relief until at least 2027, Mr Bloxham said.
The board should take a lesson from 2025, when it cut interest rates three times as inflation was still coming down, and not turn its back on the inflation dragon until it is sufficiently tamed, he said.
“We expect the board to judge that now is the time to pause, but that the fight may not be over yet,” Mr Bloxham wrote in a research note.
“The knight will need to remain armed and vigilant. No returning with good news of a slayed dragon and cutting the cash rate quite yet.”
Financial markets agreed with the vast majority of economists that the Reserve Bank would hold the cash rate steady at 4.35 per cent on Tuesday, but were pricing in about a one-in-two chance of one more rate rise in 2026.
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