RBA Grants Rate Reprieve as Housing Market, Consumer Spending Cools

The RBA also noted that some firms facing cost pressures are continuing to pass those increases through to consumers, keeping inflation elevated.

Short-term inflation expectations have eased slightly but remain higher than earlier in the year.

Financial conditions have tightened over 2026 following three earlier rate increases, with higher money market rates, rising government bond yields and an appreciated exchange rate.

There are early signs of softer consumer spending and a cooling housing market, with price declines emerging in some capital cities.

The labour market remains mixed, with a higher-than-expected unemployment outcome in April offset by resilience in other indicators. Business investment remains strong and credit is still readily available.

The RBA said uncertainty around the outlook remains elevated, particularly due to global energy disruptions and geopolitical risks. It reaffirmed its focus on preventing inflation from becoming entrenched and said monetary policy is well placed to respond further if required, including the possibility of additional rate increases if inflation does not moderate.

A welcome reprieve as economy cools

Knight Frank chief economist Ben Burston said the decision to hold was “a welcome reprieve for property markets and signals the need for more time to assess the impact of the three earlier rate rises and the strength of the inflation pulse still feeding through from higher fuel prices”.

“There is now clear evidence that the economy is cooling, given weak consumer and business confidence and falling house prices in Sydney and Melbourne, and the RBA will be wary not to overplay their hand,” he said. 

“While investors will feel that they aren’t out of the woods just yet, they will take heart from shifting market expectations which point to a lower probability of further rises.   

“Meanwhile, leasing market fundamentals remain favourable in most markets with rental growth continuing to support investment returns and attract capital to the main commercial sectors, so the latest run of rate rises has been far less disruptive than in 2023.”

CPA Australia warned that small businesses and households remained under sustained financial pressure.

CPA Australia business and investment lead Gavan Ord said while a pause in rate rises was welcomed, it did little to alleviate the broader cost burdens facing Australian businesses and consumers.

“A hold on interest rates will be welcomed by many businesses and households, especially those who are already stretched by higher borrowing costs,” Mr Ord said.

“However, the reality is that cost pressures remain high—inflation is still persistent across essential goods and services, fuel costs remain volatile, and consumer confidence continues to be subdued.”