The Reserve Bank of Australia (RBA) has delivered another 0.25 per cent hike, bringing the official cash rate to 4.35 per cent (its highest level since November 2023), following weeks of heightened uncertainty across both domestic and global economic conditions.
Leading into the meeting, expectations had coalesced around persistent inflation pressures, a resilient labour market and ongoing strength in segments of the Australian economy.
Data released by the Australian Bureau of Statistics (ABS) showed headline inflation rose 4.6 per cent in the year to March 2026, remaining well above the RBA’s 2–3 per cent target band, with underlying measures also elevated.
Beyond domestic conditions, the global backdrop has shifted, with energy markets emerging as a key source of volatility.
Escalating geopolitical tensions in the Middle East and disruptions to oil supply routes have raised concerns about renewed inflationary pressures, particularly through fuel, transport and broader input costs.
Labour market conditions have remained relatively firm, with unemployment holding at 4.3 per cent and participation elevated, which reinforced concerns that services inflation may remain sticky even as goods disinflation progresses.
Blerina Uruci, chief US economist at T. Rowe Price, said prior to the decision that inflation remained above target and elevated energy prices were likely to accelerate again in the June quarter, reinforcing a near-term tightening bias.
“The market has priced a 25 basis points (bps) hike at 75 per cent probability and 2.5 more hikes by end 2026,” she said, adding that policymakers were likely to front-load tightening to prevent second-round energy effects feeding into inflation expectations.
VanEck senior portfolio manager Cameron McCormack said a move at this meeting appeared “a foregone conclusion”, noting that inflation had already proven sticky before the escalation in Middle East tensions, with higher oil prices adding further complexity.
Anthony Malouf, economist at Ebury, said the case for tightening was clear ahead of the decision.
“The necessity for a hike is clearly underpinned by the interplay between elevated inflation and a persistently resilient labour market,” he said. “With trimmed mean holding at 3.3 per cent and domestic price pressures remaining elevated, we believe the RBA has little choice but to act.”
“The labour market continues to provide cover for further tightening – the unemployment rate sits at 4.3 per cent, with jobs growth remaining resilient, largely supported by full-time employment.”
More to come…
