The Reserve Bank's Monetary Policy Board left the cash rate target at 4.35 per cent on yesterday. The decision was unanimous and matched the consensus of bank economists going in. The Board attached a condition to the pause: it will lift the cash rate again if upside inflation risks materialise.
Inflation explains the retained tightening bias. Headline CPI ran at 3.9 per cent over the year to June and the trimmed mean at 3.6 per cent, and the Board noted the trimmed mean has changed little since March. Some firms facing cost pressures continue to raise prices. The August Statement on Monetary Policy now has inflation returning to the 2 to 3 per cent band in late 2027 and reaching the midpoint in early 2028. The Bank pointed to domestic capacity pressures and the pass-through of conflict-related costs, with unresolved Middle East tensions keeping oil prices high.
Against that, the labour market has softened by a little more than the Bank expected, though leading indicators point to only modest further easing. Consumer spending growth is slowing gradually. Business investment and business debt remain firm. Housing has turned, with prices falling in some capital cities and new lending well down.
RBA forecasts, August 2026
| Metric | June 2026 | End 2028 | Direction |
| Headline CPI | 3.9% | 2.4% | Falling |
| Trimmed mean CPI | 3.6% | 2.4% | Falling |
| Unemployment rate | 4.4% | 4.8% | Rising |
| GDP growth (annual) | Subdued | 1.4-1.9% | Below potential |
| Cash rate target | 4.35% | n/a | On hold, hike bias |
The Bank describes policy as somewhat restrictive and expects growth to sit below potential across the forecast period.
What it means for portfolios
The near-term rate path now runs from hold to hike, with cuts absent from the forecast horizon. Investors positioning for a 2026 easing cycle no longer have the Bank’s forecasts on their side. The next Board meeting is 29 September, and the September quarter CPI print in late October carries more weight than usual.
Rate-sensitive sectors face a longer wait. Real estate investment trusts, listed housing exposures and long-duration growth names all rely on a falling discount rate that the Bank is not offering. Domestic banks trade with two competing forces: a higher-for-longer cash rate supports net interest margins, while a softening labour market and falling house prices raise the arrears question. The majors traded lower on the day ahead of their own reporting.
Energy exporters benefit from the same oil backdrop the Bank flagged as an inflation risk. WTI rose 6.77 per cent to US$82.30 on the session, and energy was the strongest sector on the ASX 200. Transport, retail and other input-cost takers sit on the other side of that trade.
Fixed income holders received a modest bid, with Australian bond yields easing as investors treated 4.35 per cent as close to the peak. Term deposit and cash rates hold their appeal for longer than a mid-year easing scenario would have allowed. The Australian dollar held firm, supported by elevated real yields, which trims the translated earnings of ASX companies with US revenue.
Equities took the outcome calmly. The ASX 200 finished the session 0.2 to 0.3 per cent higher around 9,263, just below its 9,296.7 record close, with materials extending an eighth consecutive session of gains and healthcare up close to 32 per cent from its June low.
The practical read for Australian investors: income and quality earnings streams keep their advantage while the cash rate stays at 4.35 per cent, and the case for adding duration or rate-sensitive cyclicals depends on evidence that trimmed mean inflation is falling rather than flat.
