The Reserve Bank of Australia kept its benchmark cash rate unchanged at 4.35% on Tuesday, giving mortgage-holders a reprieve after three rate increases earlier in the year, but cautioned that it stood ready to tighten further if inflation does not come back under control. The decision was unanimous.

In its statement, the board said inflation "picked up materially in the second half of 2025" and that both headline and underlying measures "are still too high." It pointed to higher oil prices, driven by the Middle East conflict, as a force expected to sustain price pressures in the months ahead.

The bank said the three rate rises delivered so far in 2026 had tightened financial conditions and that signs of a slowdown were emerging, with consumer spending moderating and momentum in the housing market shifting. It judged that it should assess the economy’s response to those increases before moving again.

But the board left the door firmly open to further action. "It will do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required," the statement said, adding that it "remains focused on ensuring that inflation does not become embedded once the impulse from higher oil prices has passed through."

Financial markets had priced in roughly a one-in-two chance of one more rate rise before the end of 2026, reflecting the uncertain path of inflation as global oil supply remains in flux following the US-Iran framework deal.

For households, the pause offers temporary relief after a year in which repayments have climbed repeatedly. The cash rate at 4.35% remains restrictive by the standards of the past decade, and the bank’s warning suggests borrowers should not assume the tightening cycle is over.

Prime Minister Anthony Albanese’s government has leaned on housing affordability measures to ease cost-of-living pressures, pointing to a deposit-support scheme it says has helped large numbers of first-home buyers. The RBA’s caution underscores how much the inflation outlook now hinges on energy prices it cannot control.

Attention turns to the next round of inflation data, which will shape whether the central bank resumes hikes or holds steady as global oil prices retreat from their recent highs.