Inflation remains too high, prompting the Reserve Bank of Australia to hold interest rates steady at 4.35% – but governor Michele Bullock has made clear the pause is no signal that the tightening cycle is over. “Today’s decision does not rule out further tightening in monetary policy if that is what is required to bring inflation down,” she said after the RBA’s June board meeting, the first since the federal budget. The board voted unanimously to leave the cash rate unchanged, a move widely anticipated by economists and markets, following three consecutive rate rises earlier this year that Bullock acknowledged “are tough for households”.
RBA holds rates, warns of possible further hikes
The RBA’s decision to hold gives the board “time to assess how these previous increases are flowing through the economy”, Bullock explained. The board’s accompanying statement noted that higher fuel prices have already begun pushing up the costs of some goods and services, and it is determined to prevent those initial price rises from embedding into wage and price expectations. “Inflation is still too high,” the board said, and “growth in demand needs to slow to reduce capacity pressures and help bring inflation back to target”. It pointed to signs that the economy is slowing as expected, but judged it appropriate to leave rates unchanged while assessing the response to previous increases and the impact of the oil supply disruption.
The current cash rate of 4.35% follows a historic low of 0.10% during the pandemic and a series of hikes from 2022 onwards. Three of the four major banks – NAB, CBA and ANZ – expect the rate to remain at this level for the rest of 2026, while Westpac forecasts two further rises in August and September. The Shadow Board at the Crawford School of Public Policy had recommended holding, assigning a 60% probability that this was the optimal decision, pointing to persistent underlying inflation despite a slowing economy.
Middle East conflict poses ongoing risk to inflation
Bullock welcomed reports that a ceasefire agreement had been reached to end the conflict in the Middle East, but she cautioned that any resolution remained at an early stage. “If the conflict does end and the strait of Hormuz is reopened, this should support the flow of commodities and lower prices,” she said. “But this could take some time, and an orderly resolution is still not assured, meaning there are still upside risks to inflation and downside risks to growth.” The board’s statement echoed that wariness, noting that “resolution of the conflict in the Middle East is at an early stage, and there are plausible scenarios where inflation is higher and activity lower than envisaged under the May baseline forecasts”. The outbreak of the US-Israel war on Iran at the end of February has already contributed to sharply slower growth and a collapse in consumer confidence as surging fuel costs bit into household budgets.
Treasurer Jim Chalmers, speaking after the RBA decision, said the government welcomed the ceasefire reports but was “realistic about how long it will take for the global economy to normalise”. “The end of this war can’t come soon enough. Australians have already paid a really hefty price for this conflict on the other side of the world,” he said. Chalmers confirmed the government is reviewing the temporary fuel excise relief on a week-to-week basis, and repeated that it was always intended to be temporary. The relief, which halved the excise by 26.3 cents per litre from April 1, is currently budgeted until the end of June.
Economic growth to slow, not shrink – RBA
The RBA does not expect the Australian economy to contract in the June quarter, despite fears of a recession. “We’re not forecasting that the economy is going to shrink in this quarter,” Bullock said. “We are forecasting that growth is going to slow, but growth has to slow. And the key reason for that is that we have excess demand. Unless demand grows more slowly than the supply side of the economy for a time, we’re not going to get inflation down.” The board said it was unworried by the higher unemployment rate given other measures suggest the job market is “more resilient”, and it had anticipated consumer spending would slow. Bullock described the slowdown as necessary and part of the process of bringing inflation back to target.
Chalmers acknowledged that global uncertainty is intensifying and that people have legitimate concerns about their place in this changing landscape. Asked whether failure to control inflation or cut rates could drive voters towards One Nation, he said: “Governments have a choice whether to dismiss those legitimate concerns, whether to deny those legitimate concerns or to try and act to address them. And we’re trying to act to address them.” The government’s response includes tax cuts for all taxpayers from July 1, a $1,000 instant tax deduction for workers from the 2026-27 income year, and the Working Australians Tax Offset. Chalmers described the upcoming budget as his “most responsible” yet, with limited room for additional cost-of-living support given its cost.
El Niño declared, adding to economic uncertainty
Separately, the Bureau of Meteorology has officially declared that an El Niño event is now underway in the tropical Pacific. The bureau said higher-than-average sea surface temperatures, weakening trade winds and consistent pressure and cloud patterns all point to a strong or very strong event, though it stressed that strength does not “necessarily mean strong impacts on Australia’s climate”. El Niño events are typically linked to hotter and drier conditions across southern and eastern Australia during winter and spring, increasing the risk of bushfires and drought. Climate experts have warned that global heating is supercharging these extremes, leading to fiercer heat, drought and flooding. The declaration follows similar announcements from the US and Japanese meteorological agencies. The Indian Ocean Dipole is currently neutral but could turn positive later this year, which would further contribute to drier conditions.
Police arrests in Dezi Freeman investigation
Investigators continue to piece together the movements of Desmond “Dezi” Freeman, the 56-year-old sovereign citizen who shot and killed two police officers in Porepunkah, Victoria, last August. On Tuesday, police in New South Wales and Victoria arrested two men as part of a coordinated operation. Victoria Police said seven warrants were executed across both states, with electronic devices seized. A 64-year-old man from Lucyvale was arrested in Wodonga and will be interviewed; a 47-year-old man from Wombeyan Caves was also arrested on unrelated outstanding warrants. Freeman, who was known to police for his hostility towards law enforcement, allegedly fatally shot Detective Leading Senior Constable Neal Thompson and Senior Constable Vadim De Waart-Hottart while they attempted to serve a warrant related to a firearms prohibition order and allegations of child sexual abuse. He fled into dense bushland and was eventually shot and killed by police in March after a seven-month manhunt. Coronial hearings have since heard that Freeman allegedly yelled abuse at dying officers and fired a deceased officer’s weapon again.
NSW ombudsman finds unlawful prisoner confinement
An investigation by the NSW Ombudsman has found that prisoners at the South Coast Correctional Centre in Nowra were unlawfully locked in their cells alone for up to 24 hours a day for periods ranging from two weeks to three months, deprived of contact visits and daily exercise. The investigation, launched after four prisoners complained in April of last year, uncovered that about 30 prisoners had faced this treatment. Similar practices were found at Parklea Correctional Centre, the Metropolitan Remand and Reception Centre, and Shortland Correctional Centre between January and April 2025. Under state law, prisoners must be given a minimum of two hours of outdoor exercise daily. The ombudsman’s report warned that “prolonged confinement to a cell, without access to exercise, can lead to significant physical deterioration and psychological harm, and compound the challenges inmates face when reintegrating into society upon release”. NSW Ombudsman Paul Miller said the issue was “foreseeable and avoidable”, stemming from a 2020 policy change that placed prisoners in protective custody in isolation rather than with other vulnerable prisoners. The report also found Corrective Services NSW’s conduct during the investigation was “unlawful and wrong” after it failed to provide requested documentation on time. Miller said: “Had we not received any complaints, it is not clear how long the situation at South Coast Correctional Centre and the other centres would have persisted.”
