RBA Holds Fire on Rates as Inflation Risks Loom

The Reserve Bank of Australia's (RBA) decision to hold interest rates at 4.35% in August was a close call, according to minutes from the meeting.

The RBA board explicitly debated whether to raise rates by another 25 basis points, with some members arguing that financial conditions were already restrictive and time was needed to assess incoming data.

Risks to inflation forecasts are skewed to the upside, the board noted, citing potential for higher oil prices, more pronounced cost pass-through from the Middle East conflict, and a larger than expected AI and data centre investment boom.

The Australian dollar had depreciated by around 1% on a trade-weighted basis since May, reflecting narrower yield differentials and lower commodity prices, but it remained roughly 5% higher than at the start of 2026 and close to its estimated long-run equilibrium level.