We’ve made it to the halfway point of 2026… and if you’re exhausted, we get it. 

This year has been a lot - and your wallet is probably feeling it too. The war in the Middle East created a major global energy shock which trickled down to our economy in Australia. 

But the Reserve Bank of Australia has decided to hold fire on the cash rate at 4.35%.

It’s exactly what 42 out of 45 economists expected out of the June 16th announcement.

And it’s what top economists from CBA, ANZ, NAB, Westpac and HSBC predicted too. 

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So why did the RBA pause the cash rate?

Inflation has been slowly creeping upwards since the middle of last year… so the central bank has been raising rates since February to try and control spending. 

Quick reminder: Inflation measures the increase in the prices of goods and services using the Consumer Price Index. When inflation is too high, the RBA can raise the cash rate as a tool to slow spending and borrowing. 

Headline inflation eased a bit in April to 4.2%, down from 4.6% in March. BUT underlying inflation (the Reserve Bank’s preferred measure) went up slightly from 3.3% to 3.4%. 

Economists reckon the slight creep in underlying inflation means we’ve still got work to do.

Another big reason is a weakening labour market. 

Our unemployment rate hit 4.5% in April, which is the highest it’s been since the pandemic (yikes!). 

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Will the Middle East situation fix things?

Maybe, eventually. A US-Iran peace deal has been signed and the Strait of Hormuz may reopen, which could ease fuel costs. But shipping doesn't bounce back overnight. Supply chains take time to normalise and prices could stay elevated for months even if the deal holds. 

And if shipping disruptions continue, prices could stay elevated for longer 

The RBA can't control what's happening overseas. What it can control is the cash rate, and that's the lever it just pulled.

That’s where this cash rate decision comes in.

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What happens when the cash rate stays the same?

For most people, we continue with the status quo. 

If you’ve got a variable-rate home loan, your interest rate and mortgage repayments remain the same.

Good news for savers, your interest earning accounts just avoided a hit, so you’ll keep earning at your current interest rate. 

But some rates can move independently of the RBA, so the terms of your specific account will determine what actually happens to your rate.

Plus, most economists don’t think any cuts will come until the second half of next year. So the household budget squeeze  isn’t over yet.

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