Sydney – 15 and 16 June 2026
Members present
Michele Bullock (Governor and Chair), Andrew Hauser (Deputy Governor and Deputy Chair), Marnie Baker AM, Renée Fry-McKibbin, Ian Harper AO, Carolyn Hewson AO, Bruce Preston, Iain Ross AO, Jenny Wilkinson PSM
Others present
Sarah Hunter (Assistant Governor, Economic), Christopher Kent (Assistant Governor, Financial Markets)
Anthony Dickman (Secretary), David Norman (Deputy Secretary)
Meredith Beechey Osterholm (Head, Monetary Policy Strategy), David Jacobs (Head, Domestic Markets Department), Michael Plumb (Head, Economic Analysis Department), Michelle Wright (Deputy Head, Communications Department)
Financial conditions
Members observed that financial conditions abroad had eased somewhat since the previous meeting, in response to progress towards resolving the conflict in the Middle East. Expectations for central bank policy rates had generally declined, oil prices had fallen significantly and equity prices had risen in many countries. Members acknowledged the indications of a potential resolution of the conflict but noted the ongoing uncertainty over the final outcome and the implications for energy markets.
Even after the recent easing in financial conditions, policy interest rate expectations across many advanced economies remained higher than before the start of the conflict in the Middle East. Members noted that the European Central Bank and Norges Bank had both raised interest rates to contain the second-round effects of higher oil prices and address broader concerns about above-target inflation. The US Federal Reserve and Bank of England – both of which had been expected by financial market participants before the conflict to have lowered their policy rates by now – had decided to maintain their policy rates. Financial market participants expected both to lift these rates later in 2026. More generally, financial markets continued to expect that many advanced economy central banks would tighten monetary policy before the end of 2026 in response to above-target inflation and concerns about the inflationary effects of the conflict.
Bond yields in many advanced economies, including Australia, had unwound some of their earlier increase since the previous meeting. These falls were in response to both lower oil prices and the flow of economic data. However, yields had risen in the United States and Japan, reflecting stronger economic data. Short-term inflation compensation measures had generally eased but remained higher than before the onset of the conflict in the Middle East. Longer term market expectations for inflation had remained generally stable and consistent with central banks’ targets.
The Australian dollar had depreciated a little since the previous meeting, in line with a decline in yield differentials (particularly against the United States) and a modest fall in commodity prices. The trade-weighted exchange rate nevertheless had remained comparable to its level at the onset of the conflict and broadly consistent with its estimated long-run equilibrium level.
Equity prices had risen in most advanced economies and spreads on corporate bonds had remained tight. These outcomes had been supported by strong earnings expectations, most notably in the United States. In contrast, Australian equity prices had remained flat, as they had been for some time, reflecting only modest upward revisions to the outlook for company earnings. Members noted that this was likely to reflect a range of factors, including limited productivity growth, recent increases in the cash rate target, the expected impact of announced tax changes on bank lending and the more limited participation by Australian companies in the artificial intelligence (AI) boom compared with companies in some other countries.
In China, the household and property sectors both remained weak, which was weighing on household borrowing. The authorities’ economic strategy appeared to be prioritising strategic sectors, including AI, rather than providing additional support to domestic activity more broadly.
Turning to Australia, members noted that financial conditions had tightened since the start of the year following three increases in the cash rate target. However, financial market participants’ expectations for the future path of monetary policy had eased noticeably since May in response to lower global oil prices and weaker-than-expected data for both the labour market and headline inflation in Australia in April.
Members agreed that financial conditions were now probably somewhat restrictive. They discussed updates made by the staff to some models of the neutral rate, noting that these did not materially alter their assessment of financial conditions. The cash rate target sat at around the top of the range of these model estimates, and above the range of market economists’ estimates of the neutral rate. Members observed that estimates of the real neutral rate had risen over preceding years – consistent with a global trend, which probably reflected factors such as increased investment in the energy transition, defence and, more recently, data centres – and were a little higher than when the cash rate target was previously at its current level. Members nevertheless emphasised that assessments of the neutral rate are inherently uncertain and do not provide a direct guide for monetary policy.
Members continued their assessment of the tightness of financial conditions by considering evidence from a broader range of indicators. These generally showed that the tightening in monetary policy was starting to be transmitted to the economy through various channels. Conditions in the established housing market had softened and housing credit growth looked set to slow in the period ahead. This reflected the pass-through of monetary policy tightening and, more recently, tax changes for housing investors announced in the Australian Government budget. Business debt growth had remained relatively strong over prior months, some of which reflected syndicated lending for the construction of data centres.
Banks had passed the higher cash rate through to lending and deposit rates, and scheduled mortgage payments had risen. Compared with household disposable incomes, scheduled mortgage payments were a little lower than the previous episode when the cash rate was at current levels, reflecting the fact that growth in income had outpaced growth in credit in the intervening period. Members discussed how to assess the net impact on the economy of monetary policy easing in 2025 and tightening in 2026, noting the lags in the effect of monetary policy.
Members noted that the cash rate target was widely expected by market participants to remain on hold at the present meeting. Market pricing at the time implied a 50 per cent chance of a further 25 basis points increase in the cash rate by the end of 2026, having priced in about 40 basis points of increase immediately after the May meeting. Some market economists expected the cash rate to be increased again in 2026 because of ongoing inflationary pressures from both domestic and international factors. Others expected monetary policy to remain on hold in 2026 and then to be eased from around mid-2027, given restrictive financial conditions currently, signs of a slowing in aggregate demand and an anticipated decline in inflation.
Economic conditions
Members observed that the latest domestic data for the March quarter had confirmed that capacity pressures remained elevated in that period, albeit at a slightly lower level than previously assessed, and inflation was still above target. Indicators of economic activity since March had been mixed but appeared to show the economy easing broadly as expected.
Members discussed the March quarter national accounts. As expected, GDP had increased by 2.5 per cent over the year to the March quarter. Underlying momentum in household consumption had started to ease before the onset of the conflict in the Middle East, and public demand growth had been weaker than anticipated in the quarter. However, private business investment had been much stronger than expected, largely driven by investment in data centres. Members discussed the broader implications of the strength in investment in data centres, noting that such spending can be difficult to forecast and that in the United States it had repeatedly surprised analysts. Members noted that, while much investment in data centre requires imported components, it also requires some domestic inputs. They discussed the potential for continued strength in such activity to exacerbate capacity pressures and skills shortages in other parts of the economy.
Members noted that the national accounts had revealed further weakness in economy-wide productivity growth. They discussed both the associated measurement challenges and the broader implications for the supply side of the economy. Regarding wages, members noted that growth in the Wage Price Index had been in line with expectations. Measures of average earnings from the national accounts had been a little softer than anticipated, but weak productivity growth meant that growth in unit labour costs remained above its average over the inflation-targeting period.
Members turned to developments in the global economy. The recent announcement of an interim peace agreement between the United States and Iran was a welcome development but this was only the first stage of resolving the conflict in the Middle East. The associated decline in global energy prices had left the oil price futures curve broadly in line with the May baseline forecast assumptions. Members noted that inventory drawdowns and increased supply from elsewhere had continued to buffer the impact of energy supply disruptions in the Middle East on global energy markets. Domestic retail fuel prices had been a little lower than expected, though some of the recent decline would be reversed if the temporary fuel excise reduction expired on 30 June as currently legislated. Members noted that, even if a lasting agreement to end the conflict were reached, it would take some time for global production and distribution of oil and affected commodities to return to more typical levels.
Growth in Australia’s major trading partners had been resilient and broadly as expected, supported by AI-related spending. In China, exports had been resilient but growth in domestic activity had slowed in April. Higher energy prices had pushed headline inflation up in most countries in April. Although the extent of the increase varied, in part because of differing policy responses, inflation was above central bank targets in around two-thirds of countries. Producer prices had generally increased by more than consumer prices, and surveys suggested some margin pressures for firms. Core consumer price inflation in most countries had been little changed but was expected to increase in coming months as cost pressures are passed through.
Returning to the domestic economy, members noted that timely data had been somewhat mixed but broadly consistent with the May baseline forecasts, which incorporated a slowing in demand growth this year.
Underlying CPI inflation in April had been consistent with the staff’s earlier expectation for the June quarter. Within that total, market services, rent and durable goods price inflation were all broadly in line with expectations, groceries inflation was lower, and new dwellings price inflation was considerably higher as firms passed on some of the cost impost of higher oil prices. By contrast, headline inflation had been weaker than expected by market economists, reflecting weakness in international travel prices and a larger-than-expected decline in fuel prices. Business surveys and liaison pointed to elevated and broad-based cost pressures, and there were signs that some firms were passing these on to higher prices of their goods and services. Members noted that short-term inflation expectations had increased in prior months, notwithstanding a small decrease in the weeks preceding the meeting; this increase had been larger than would be expected from their past relationship with inflation and fuel prices. Longer term measures had remained consistent with achieving the inflation target, although unions’ long-term inflation expectations were an exception, having picked up sharply in May, as they had in 2022.
Members discussed the labour market data for April. Some key indicators had been weaker than expected (most notably the unemployment rate and total employment), while others (such as total hours worked and the underemployment rate) pointed to more resilient labour market conditions. Leading indicators, such as job ads, suggested labour demand had been broadly stable. On balance, the staff assessed that labour market conditions were a little weaker than had been expected in May but cautioned against reading too much into monthly data outcomes, which can be volatile. Members also discussed the Fair Work Commission’s announced increase in all modern award wages from 1 July. Although the outcome was moderately higher than had been assumed in the staff’s May forecasts, members noted that the increase applied to the lowest wage earners. Views differed on the extent to which the outcome might indirectly influence other wage negotiations, but members agreed that this would depend in part on the tightness of the labour market and expectations for inflation.
Members concluded their discussion of domestic economic conditions by considering the momentum in activity. Despite consumer sentiment remaining very low, household spending growth had not softened materially; members noted that, historically, the relationship between these two variables was quite weak and typically close to contemporaneous, suggesting that weak consumer sentiment does not necessarily signal future weakness in consumption. Likewise, business confidence had been weak but surveyed business conditions and capacity utilisation had declined only modestly and investment intentions had been revised a little higher. Recent federal and state budgets had not significantly altered the staff’s outlook for public demand. However, members noted that conditions in the housing market had eased by more than expected, reflecting the recent increases in the cash rate, tax changes announced in the Australian Government budget and the broader economic environment.
Considerations for monetary policy
Turning to considerations for the monetary policy decision, members noted that information received since the previous meeting had supported the view that the economy was operating with excess demand and widespread inflationary pressures. Inflation was still materially above the Board’s target and the staff’s expectation remained for underlying inflation to increase in the June quarter. Labour and non-labour cost pressures remained widespread. Consumer and business sentiment remained very weak but members agreed that the overall data on activity implied that economic growth was easing broadly as expected.
Members acknowledged the emergence of a potential path to resolution of the conflict in the Middle East but observed that this was still at an early stage. Global oil prices had eased in prior weeks but remained higher than before the onset of the conflict. Members agreed that even if the resolution proves enduring, global commodity supply constraints would take some time to resolve.
Members judged that Australian financial conditions were now somewhat restrictive, although this remained uncertain. It would take some time to assess the ultimate impact on the economy of the tightening in monetary policy since February but, at this stage, it appeared to be having broadly the expected effect. Housing demand had eased, which also reflected the broader economic environment and recently proposed tax changes.
In light of these observations, members agreed that leaving the cash rate target unchanged at this meeting would best balance the Board’s inflation and employment objectives. Inflation remained materially above the Board’s target, and members noted that the staff’s May forecasts (which were based on available data and conditioned on market expectations for interest rates at that time) envisaged that it would be a further two years before inflation returned sustainably to target. Against that backdrop, members agreed that monetary policy needed to remain restrictive to unwind current excess demand through a period of below-trend growth. While the most recent data and forward-looking indicators suggested somewhat mixed signals about how quickly momentum in economic activity was slowing, members judged the easing in growth to be broadly in line with earlier expectations.
Members agreed that leaving the cash rate target unchanged was appropriate given the ongoing uncertainty related to developments in the Middle East. They noted that, if the emerging path to resolution of the conflict proves enduring, it could reduce the extent to which firms pass on higher costs to consumer prices. However, they acknowledged that, even in that case, it was still likely that underlying inflation would increase to some extent in response to recent fuel supply disruptions.
Taking these considerations together, members judged that there was merit in using the space provided by the Board’s earlier decisions to raise the cash rate target to assess how the economy was adjusting and the impact of disruptions to oil supply.
After deciding to keep the cash rate target unchanged at this meeting, members discussed the main risks that could have a bearing on future decisions.
One set of risks related to developments in the Middle East. Members noted that there were still credible scenarios for the evolution of the conflict that could result in higher inflation and lower activity than in the May baseline forecasts. Members noted the potential for sustained high oil prices to feed through more fully into price- and wage-setting behaviour, even if fuel prices subsequently abate. Moreover, they agreed that it would take considerable time to restore oil supply to its pre-conflict level, even if the current resolution proves enduring, and noted that demand for oil could be buoyed for a time if countries seek to rebuild their inventories. These considerations led members to assess that the Middle East conflict still posed material upside risks for inflation and downside risks for growth.
A second set of risks discussed by members was domestically focused. Members noted the implications of persistently weak productivity growth for the economy’s supply capacity and sustainable growth rate. While members expressed somewhat differing views about the extent of current capacity pressures, they agreed that persistently weaker-than-expected productivity growth could impede progress on returning inflation to target. Members also noted the risks associated with a potentially material weakening in housing markets, including if this were to inhibit growth in consumption.
In finalising its statement, the Board agreed to remain attentive to the data and the evolving assessment of the outlook and risks when making its decisions. The Board will remain focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome, including increasing the cash rate target if necessary.
The decision
The Board decided unanimously to leave the cash rate target unchanged at 4.35 per cent.
Framework for additional monetary policy tools
Following discussion and in-principle approval of the framework for additional monetary policy tools at the previous meeting, and subsequent feedback from the RBA’s Governance Board, the Board approved the final version of the framework. Members noted that the Governance Board had viewed the governance and risk elements of the framework as appropriate, while emphasising that the framework and any future advice to use specific tools should clearly identify the materiality of the use of that tool’s potential impact on the RBA’s balance sheet.
Members approved the framework and agreed to it being published alongside a speech by the Assistant Governor (Financial Markets) at the end of June. They noted that future work would focus on further developing aspects related to risk management and operational readiness.
