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The Guardian World1 min read
RBA interest rates: Reserve Bank holds official cash rate at 4.35% as economy slows and unemployment rises
TL;DR
The Reserve Bank of Australia has maintained the official cash rate at 4.35% amid slowing economic activity and rising unemployment. This decision offers no relief to mortgage holders facing increased repayments due to previous rate hikes.
Key points
- Reserve Bank holds official cash rate at 4.35%
- Economic activity slowed and unemployment reached a four-year high
- Mortgage repayments increased significantly due to prior rate hikes
- Consumer spending on non-essentials barely increased
- Real GDP growth fell to 0.3% in the March quarter
The Reserve Bank has left its official interest rate on hold at 4.35%, after economic activity slowed and unemployment hit a four-year high.
The widely expected decision on Tuesday will bring little relief to mortgage holders, already strained by the RBA’s three consecutive rate hikes earlier in 2026.
For an owner-occupier with an average-sized new mortgage of $745,000, now paying a typical rate of 6%, the year’s rate increases have seen monthly repayments soar from $4,114 to $4,467. A fourth rate increase would have added another $120.
Households barely increased spending on non-essentials in the three months to March but cut back on saving to spend on essentials like electricity and fuel.
Slower consumer spending saw real GDP growth falter to just 0.3% in the March quarter, from 0.9% in the December quarter of 2025.
Unemployment jumped to 4.5% in May for the first time since 2021.
Justin Zook, a senior director at Fitch Ratings, said interest rate hikes would probably hit household spending harder in 2026 than they had in 2022 and 2023, partly because households had less money in savings.
“Households just don’t have … those piles of cash that they had because they weren’t out spending money during the pandemic,” Zook said.
All four major banks expected interest rates would stay on hold on Tuesday. Top economists at ANZ, Commonwealth Bank and NAB had forecast rates had hit their peak and would will start to fall from the middle of 2027.
Financial markets, though, have bet a hike is more likely than not over the next 12 months.
Westpac had predicted the cash rate would rise in August and September, with no cuts until 2028. Westpac’s chief economist, Luci Ellis, has predicted inflation will peak at 4.7% in late 2026, higher than the RBA’s forecast.
In a note on Friday, Ellis wrote higher fuel prices from the US-Israel war on Iran would push up freight and other costs, keeping inflation high over 2026. Westpac expects petrol prices of 205 cents a litre and diesel at 239 cents a litre on average over the coming three months after the government’s fuel excise cut ends.
More to come …
Q&A
What is the current official cash rate set by the Reserve Bank of Australia?
The current official cash rate set by the Reserve Bank of Australia is 4.35%.
How have recent interest rate hikes affected mortgage repayments in Australia?
Recent interest rate hikes have caused monthly repayments for an average-sized mortgage of $745,000 to increase from $4,114 to $4,467.
What impact has the economic slowdown had on consumer spending in Australia?
The economic slowdown has led to minimal increases in consumer spending on non-essentials and a reduction in savings, as households prioritize spending on essentials.
