The big four bank shares all correctly predicted yesterday's RBA decision to hold the cash rate at 4.35%.
The Reserve Bank of Australia unanimously decided to keep the cash rate the same after three consecutive hikes.
Image source: Getty Images
Why did the RBA keep rates on hold?
According to a release from Australia's central bank, there were several factors at play that led to the decision:
- Inflation remains too high: Both headline and underlying inflation are elevated, driven by oil price shocks passing through to goods and services, plus existing capacity pressures in the economy.
- Previous rate rises need time to work: Three cash rate increases earlier in 2026 have already tightened financial conditions, with signs of slowing consumer spending and a cooling housing market, so the Board is pausing to assess their impact.
- Global uncertainty: Ongoing Middle East conflict and oil supply disruptions create unpredictable risks to both inflation and economic growth, warranting a cautious "wait and see" approach.
- Door remains open to further hikes: The Board stressed it will do "whatever necessary" to bring inflation to target, including raising rates again if required.
Why does this impact ASX bank shares?
One sector that is highly influenced by cash rate decisions is ASX bank shares.
Keeping rates on hold is broadly neutral to mildly positive for ASX bank shares in the short term.
Banks benefit from higher rates through wider net interest margins (the gap between what they charge borrowers and pay depositors).
This means a pause protects those margins without the added risk of rate rises tipping more borrowers into stress.
However, the ongoing threat of further hikes and a slowing economy cloud the outlook.
Rising unemployment and falling housing prices could lead to higher loan defaults, which would weigh on bank earnings.
Overall, markets will likely take the hold as a stable signal, but lingering inflation uncertainty keeps sentiment cautious.
What are experts tipping for ASX big four bank shares?
The big four bank shares have largely underperformed in 2026.
At the time of writing, Commonwealth Bank Of Australia (ASX: CBA) is flat in 2026.
Meanwhile Westpac Banking Corp (ASX: WBC), Anz Group (ASX: ANZ) and National Australia Bank (ASX: NAB) have fallen between 4% and 10%.
ASX big four bank shares have underperformed in 2026 due to a combination of stretched valuations from a late-2025 rally, slowing property markets, housing tax changes, and rising bad debt provisions as household financial stress increases.
The Middle East conflict has compounded the pain by driving energy-led inflation higher, complicating the interest rate outlook and weighing on consumer sentiment and loan quality.
At the time of writing, experts are tipping little relief in the near future.
As Bernd Struben reported, hedge funds are heavily shorting ASX bank shares.
CBA shares have drawn a near unanimous sell rating, while NAB and Westpac have also drawn sell recommendations.
The only positive outlook appears to be for ANZ, which recently received a buy rating and $39.25 price target from Citi.
This indicates a 13% upside from current levels.
