The Reserve Bank of Australia decided to leave the cash rate target unchanged at 4.35%, according to the central bank's monetary policy statement released Tuesday.
The bank said financial conditions are now tighter following three rate increases since the beginning of the year, with signs the economy is slowing as expected. However, inflation remains too high, prompting the board to leave the cash rate unchanged while assessing the impact of previous rises and the oil supply disruption.
Inflation picked up materially in the second half of 2025, with capacity pressures contributing to the increase, the bank said, adding that headline and underlying inflation remain too high even as oil prices have eased in recent weeks.
Energy and most related commodity prices remain higher than before the Middle East conflict, with some firms raising prices or looking to do so, while short-term inflation expectations have eased but remain above earlier levels, the RBA added.
Growth in consumer spending is slowing as expected, and housing market momentum has shifted, with prices falling in some capital cities, the bank said. It noted that the unemployment rate was higher than expected in April, although other labor market measures have been more resilient.
RBA added that heightened uncertainties persist around domestic activity and inflation, given the early-stage resolution of the Middle East conflict.
Global oil supply issues will take time to resolve, maintaining upward pressure on energy prices and inflation, while a period of prolonged uncertainty may also weigh on growth in Australia's major trading partners and domestically, it added.