The RBA turns from cuts. Three hikes, then a hold.

At its June 16 meeting, the Reserve Bank of Australia (RBA) held its policy rate (the cash rate) at 4.35%. The vote was unanimous. But this is a pause after three consecutive hikes in February, March, and May of 2026. The statement said "both headline and underlying inflation remain too high" and made clear it would not hesitate to hike further if needed.

As recently as about a year ago, the RBA was in a cutting phase. Then an inflation flare-up and higher fuel prices from Middle East tensions sent it abruptly back to hiking. Governor Bullock has not softened her hawkish stance, saying she will "do what it takes." From cuts to hikes — Australia's monetary policy has gone through a "U-turn" that is rare even globally.

The RBA hiked from 2022, peaking at 4.35% in November 2023. It then turned to cuts from late 2024, lowering the rate to 3.60% in May 2025. But inflation flared up again, and in 2026 it hiked three times in a row. In May that year the rate returned to 4.35% — as if it climbed down the mountain only to climb back to the same summit.

This "round trip" shows how the fight against inflation is anything but straightforward. Inflation that once came down reaccelerated on higher energy prices, undoing the cuts. The current 4.35% is the same level as the previous peak, but it differs decisively in that it was "reached again by hiking," not "reached by holding."

The latest April CPI (consumer prices) was +4.2% year on year, down from +4.6% in March. But the underlying inflation the RBA watches (the trimmed mean) actually ticked up slightly to +3.4%. It remains above the top of the 2–3% target range, providing the justification for hikes.

The RBA's inflation target is not a pinpoint "2%" like the US, Europe, or Japan, but a "range of 2–3%." As long as underlying inflation exceeds the top of this band, it is hard for the RBA to move to cuts. Meanwhile the economy is on the soft side: unemployment has risen to 4.5%, and GDP grew just +0.3% on the quarter, lacking momentum. The squeeze between inflation and growth continues.

Even as it keeps hiking, signs of a slowdown are appearing in the Australian economy. The statement noted that "momentum in the housing market has changed, and house prices have fallen in some cities." This is a clear shift from the March meeting, which had emphasized strong house-price gains. Exports also declined, with coal −6.8% among others, reflecting weak demand from China, Australia's largest trading partner.

The RBA also warned that "if global economic uncertainty persists, growth in Australia and its major trading partners could come in lower." As a resource economy, Australia is heavily swayed by China's economy and commodity prices. The risk that hikes meant to curb inflation further chill the economy — this tightrope walk lies behind the decision to hold.

Monetary policy is decided by the Monetary Policy Board, newly established in 2025. Nine members debate, and in recent years the vote breakdown is also published. Tracing the four meetings of 2026 reveals the committee's "hesitation" and "convergence."

The March meeting split right down the middle at 5 vs 4 — the moment the committee was most divided over whether to rush hikes or take a cautious stance. It then converged on a hike 8 vs 1 in May, and held unanimously in June. The vote dynamics directly mirror the policy process of moving "from hesitation to consensus." The decision comes at 2:30 pm Sydney time, with Governor Bullock holding a press conference an hour later.

There are eight meetings a year, roughly every six weeks. At the February, May, August, and November meetings, the detailed quarterly Statement on Monetary Policy (SMP) is published. With today's meeting over, the next is August 10–11.

The market's focus is whether 4.35% becomes a "ceiling once more" or merely a waypoint. If underlying inflation falls back into the target range (2–3%), the hold continues; if it reaccelerates, a further hike follows. The outlook presented in the August SMP (Statement on Monetary Policy) will set the next direction.

The Australian dollar is a leading commodity currency, swayed by the RBA's rate and by China and commodity markets. Hikes usually favor a stronger Aussie dollar, but recently calmer oil prices and slowdown fears have weighed on it, creating a "hawkish but hard for the Aussie to rise" situation. Against the yen, Australia's high rates have underpinned Aussie-buying and yen-selling.