The Reserve Bank of Australia (RBA) decided to keep its policy rate unchanged at 4.35% during its latest meeting, citing ongoing elevated inflation primarily driven by the Iran war's impact on global oil supply [1]. The decision was unanimous and in line with economists' expectations, as the central bank continues its efforts to control inflation and maintain full employment [1].
Despite the recent agreement between the U.S. and Iran to end the Iran war, the RBA emphasized that the resolution is still in its early stages and that oil supply disruptions are expected to persist, keeping energy prices and inflation elevated for the foreseeable future [1]. The RBA stated that inflation remains 'still too high,' with the April year-on-year print at 4.2%, above the central bank's 2%-3% target range [1]. Higher fuel prices have contributed directly to inflation, and there are signs of these costs passing through to other goods and services, suggesting inflation will remain high for some time [1].
Australia's economic growth has also shown signs of slowing. GDP expanded by 2.5% year-on-year in the first quarter of 2026, matching the previous quarter but missing expectations. On a quarterly basis, GDP grew by 0.3%, below the 0.5% forecast and decelerating from 0.9% in the prior quarter [1]. The RBA warned that a period of prolonged uncertainty could further dampen growth both domestically and among Australia's major trading partners [1].
Market reaction to the RBA's decision was muted but negative: the S&P ASX/200 index edged down slightly, and the Australian dollar weakened by 0.3% against the U.S. dollar, trading at 0.705 [1]. The RBA maintained a hawkish stance, signaling that further rate hikes remain on the table if inflation does not return to target levels [1].
CONCLUSION
The RBA's decision to hold rates steady reflects ongoing concerns about persistent inflation and subdued economic growth. With energy prices and inflation expected to remain elevated due to ongoing oil supply disruptions, the central bank signaled that further rate hikes are possible. Markets responded cautiously, reflecting uncertainty about the economic outlook.