Millions of home borrowers have been given a reprieve with the Reserve Bank unanimously voting to leave interest rates on hold for the first time this year despite governor Michele Bullock warning the aftermath of the Middle East conflict could still worsen inflation and spark more hikes.

The monetary policy board’s nine members all voted to leave the cash rate unchanged at 4.35 per cent, a day after US President Donald Trump announced a peace deal with Iran that is expected to take the pressure off inflation as oil tankers are again able to leave the Strait of Hormuz.

The decision, affecting more than 3.3 million mortgaged households, was in line with futures market expectations of no move on Tuesday and marked the first RBA meeting since December 2025 without a rate rise, following increases in February, March and May.

Ms Bullock, however, said inflation was still too high, even after 75 basis points of rate increases this year, meaning another hike in 2026 is still an option, possibly as soon as the next two-day meeting in early August.

“Today’s decision does not rule out further tightening in monetary policy if that is what’s required to bring inflation down,” she told reporters in Sydney on Tuesday.

“Leaving rates on hold today will allow the board to assess how these previous increases are flowing through the economy.

“I want to be very clear that inflation remains too high.”

Australia’s most powerful central banker also warned of inflation expectations from the Gulf war leading to even higher prices.

“If expectations of higher cost growth get embedded into price and wage-setting decisions across the economy, this would lead to even higher and more persistent inflation and it would require even more tightening in monetary policy to get inflation under control,” she said.

“If the conflict does end and the Strait of Hormuz is reopened, this should support the flow of commodities and lower prices, 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.”

A resolution to the conflict was not expected to entirely solve Australia’s inflation challenge, which was a problem before the US strikes on Iran in late February.

“It’s good news and if it comes to pass and over the next few months, we start to see oil prices settle down, and we start to see supply chains and other commodities start to work properly again, then that will help to ensure that inflation doesn’t get supercharged,” Ms Bullock said.

The RBA statement also hinted the next move was still likely to be a hike with April’s inflation rate of 4.2 per cent being well above the RBA’s 2-3 per cent target, marking the ninth consecutive month outside the band.

Underlying inflation, stripping out volatile price movements, was also high at 3.4 per cent.

“It will do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required,” the Reserve Bank’s monetary policy board said on Tuesday.

The futures market had already cancelled the prospect of rate hikes in August and September before the RBA decision, with November was still considered a possibility.

But KPMG chief economist Brendan Rynne said an August rate hike was still likely, as the aftermath of the Middle East conflict continued to push up food and transport prices, via more expensive diesel.

“For this reason, we can expect at least another hike this year, most likely in August, in order to bring core inflation back down to the mid-point of the RBA’s target band,” he said.

The likely reopening of the Strait of Hormuz was expected to take some time to ease inflationary pressures, even though the Brent price of crude oil on Tuesday fell to a three-month low under $US80 a barrel.

“Oil prices have eased in recent weeks, although energy and most related commodity prices remain higher than they were prior to the conflict in the Middle East,” the RBA said.

The conflict in the Middle East had also pushed unemployment in April up to a four-year high of 4.5 per cent and caused economic growth in the March quarter to plunge to 0.3 per cent, down from 0.9 per cent in the December quarter.

But the RBA noted growth in business investment meant the labour market was still strong, despite the jobless rate being on the high side of full employment.

“The unemployment rate was higher than expected in April, but other measures of labour market conditions have been more resilient,” the Reserve Bank said.

Treasurer Jim Chalmers described the RBA decision as a relief for millions of borrowers.

“It doesn’t make life any easier for people but it doesn’t make life harder either,” he told reporters in Brisbane.

But Dr Chalmers is still expecting price pressures to linger with the halving of fuel excise, to 26.3 cents a litre, expiring on June 30.

“We’ve made it really clear that the fuel excise relief won’t go on forever but that we will review it on a week-to-week basis to make sure that we’re providing the support that we can responsibly provide,” he said.

“In Australia, we’ve seen inflation come off a bit, but we still know that those inflationary pressures are there, made worse by the war in the Middle East and its aftermath.

“We know that when the Strait of Hormuz is open, we know that there will be some costs and consequences of this conflict still felt in our economy and in the global economy for some time.”

The Reserve Bank’s last increase in May occurred a week before the Federal Government Budget, which proposed restricting negative gearing to brand new investment properties from July 2027 as the 50 per cent capital gains tax discount was replaced with a 30 per cent tax on inflation-adjusted gains.

Ms Bullock also warned an exodus of investors from the housing market, as a result of Labor’s negative gearing and capital gains tax changes, posed financial stability risks.

“Sometimes with investors in the housing market, from a financial stability perspective, I’m not talking about whether it’s right or wrong, but they tend to come into the market when the market’s going up and they tend to get out of the market when the market’s going down,” she said.

While Labor’s fifth Budget since coming to power is yet to pass the Senate, house prices last month plunged in Sydney and Melbourne in a sign investor interest in the property market is waning.

“There are signs that growth in consumer spending is slowing as expected and momentum in the housing market has shifted, with housing prices falling in some capital cities,” the Reserve Bank noted.