Australia Holds Interest Rates Steady at 4.35% for Second Consecutive Meeting, Aligning Closer with Fed Policy

The Reserve Bank of Australia (RBA) decided on Tuesday (11th) to hold the cash rate steady at 4.35%, marking the second consecutive meeting with no rate hike. The central bank is observing whether rising unemployment and a weakening housing market are sufficiently restraining economic activity to cool inflation. The Australian dollar fell 0.1% on the news.

Earlier this year, the RBA raised rates three times in a row, increasing the cash rate by a cumulative 75 basis points (three hikes), fully offsetting last year's 75-basis-point rate cut. The August decision received unanimous support from all committee members and was in line with market expectations.

The release of inflation data for the quarter ending in June, which came in below market expectations, strengthened the RBA's rationale for pausing rate hikes. In its statement, the RBA said: "The Board remains focused on ensuring that high inflation does not become entrenched. With monetary policy judged to still be somewhat restrictive, the Board will continue to take whatever action is necessary to return inflation to target, including further increases in the cash rate target if upside risks emerge."

For Australia, the greatest uncertainty in the economic outlook stems from the ongoing deadlock in U.S.-Iran war negotiations.

Mark Haron, Executive Director at Connective, said the decision to hold rates steady provides some breathing room for mortgage borrowers. However, even with rate hikes paused, households still face significant underlying pressure.

Connective's network of mortgage brokers has observed that borrowers are gradually accepting the reality that rates may remain elevated for some time. This uncertainty continues to weigh on confidence, with consumer sentiment at one of its lowest levels in the past 50 years. This cautious mindset is spreading across the broader housing market: many buyers are taking longer to make decisions, while some sellers are choosing to delay listings, waiting for improved market conditions.

Australia's housing price decline is being led by Sydney, the market bellwether, where prices have retreated 5.3% from their peak. However, the median home price remains high at 1.24 million Australian dollars (approximately 870,000 USD), highlighting the strength of the prior rally.

By holding rates steady, Australia's policy stance is becoming more aligned with that of the U.S. Federal Reserve (Fed). The Fed held rates steady for the fifth consecutive time last month, although three meeting participants dissented, advocating for a 25-basis-point rate hike.