The Reserve Bank of Australia has left the cash rate unchanged at 4.35 per cent at its June meeting, in line with expectations. What stood out was the tone - the federal bank made it clear that rate hikes remain a live option.

 

Luci Ellis, Westpac Chief Economist, says the RBA went further than usual to underline that point.

 

The post‑meeting statement added an explicit reference to the possibility of lifting rates again if required, a signal the Bank wanted to curb market talk that the hiking cycle had ended.

 

Why the RBA is stilll on alert

Inflation remains the central concern. The RBA again stressed that price growth is too high and that a period of slower economic growth will be needed to bring it back to target.

 

Ellis says the Bank still sees the economy as running up against its limits. In simple terms, Australia can only grow at about 2 per cent a year without adding to inflation pressure. That means demand needs to cool further.

 

There are early signs of that slowdown. Consumer spending has eased and some indicators have softened. But the RBA is not overly concerned.

 

Ellis notes the RBA expected some loss of momentum - its forecasts already factored in a gradual cooling in the economy and a modest rise in unemployment.

 

The labour market remains tight by historical standards, which can keep pressure on wages and prices.

 

Energy costs and everyday prices

Another element keeping the RBA cautious is the impact of higher energy prices.

 

Energy and related commodity costs are still above pre‑pandemic levels. Ellis says the Bank expects any improvement to be gradual rather than quick. That matters because higher energy costs can flow through to the price of goods and services.

 

There is growing evidence that businesses are starting to pass these higher costs on. The RBA’s language shifted this month, pointing to clearer signs of price increases already happening, particularly in new home construction.

 

Ellis highlights that this “pass‑through” is key to the outlook. Businesses can only lift prices if customers are willing or able to pay. For now, demand appears strong enough in parts of the economy for that to happen.

 

What happens next?

Westpac’s base case remains that rates could rise again, with a possible move as early as August if inflation data stays firm.

 

A longer pause is still possible if inflation eases faster than expected. For rate hikes to be taken off the table altogether, Ellis says the RBA would need to see both a weaker economy and clearer signs that inflation is coming down.

 

For households, the message is steady but cautious.

• Interest rates are on hold for now, which offers some short‑term certainty for mortgage holders
• The risk of further increases has not disappeared, so budgeting buffers remain important
• Slower growth is part of the plan to bring inflation down and ease cost‑of‑living pressures over time

 

The RBA’s approach is of a careful balance. It wants to bring inflation under control without pushing the economy into a sharper slowdown.

 

As Ellis makes clear, the Bank is more concerned about inflation staying too high than the risk of growth easing too quickly.

 

For now, that keeps the path for interest rates tilted upwards, even if the next move takes time.