RBA holds at 4.35% but keeps another rate rise on the table

The Reserve Bank of Australia has left its cash rate unchanged at 4.35%, giving corporate borrowers a temporary reprieve after three increases this year while warning that further tightening remains possible if inflation fails to ease sufficiently.

The Monetary Policy Board unanimously voted to leave rates unchanged at its 10 to 11 August meeting. Governor Michele Bullock said another increase remained possible, after policymakers considered a hike before deciding to maintain the existing setting.

Australia’s cash rate has risen by 75 basis points since the beginning of the year. The RBA increased the rate to 4.35% in May and held it there in June, arguing that underlying inflation remained too high and that financial conditions had tightened materially.

The pause matters for corporate funding because the cash rate influences the wider structure of Australian interest rates. The RBA describes it as the operational target for the overnight money market and notes that it affects other lending and deposit rates.

Businesses borrowing through floating-rate working-capital lines, revolving facilities and asset-backed structures therefore avoid another immediate increase in benchmark funding pressure this month. Individual facility pricing will depend on the reference rate, lender margin, covenants and structure rather than the cash rate alone.

The broader pressure has not disappeared.

The RBA has said financial conditions tightened following this year’s three rate increases, while elevated energy and commodity costs associated with the Middle East conflict have complicated the inflation outlook.

For working-capital borrowers, that leaves a difficult combination. Higher interest rates increase the cost of carrying receivables and inventory, while energy, freight and other operating costs can increase the amount of funding businesses require in the first place.

The decision also contrasts with the easing expectations that dominated many developed markets before renewed inflation pressures emerged.

For Australian lenders and SMEs, the immediate result is stability rather than relief. The cost of short-term credit has not risen again in August, but Bullock’s warning means borrowers cannot yet plan on 4.35% representing the definitive peak.