CBA sees RBA on hold for rest of 2026 after third consecutive hike to 4.35%
At a Glance
The desk anticipates that the Reserve Bank of Australia (RBA) will maintain its cash rate at 4.35% for the remainder of 2026, with potential rate cuts beginning in 2027. This outlook is supported by Commonwealth Bank's recent analysis, which highlights inflation concerns and a downgraded GDP forecast. Per the full note source, the RBA's decision to raise rates for the third consecutive time reflects a cautious approach to monitoring economic developments, particularly in light of inflationary pressures stemming from energy costs. The desk notes that the market's current pricing may not fully reflect the potential for an August rate hike if inflation data surprises to the upside.
Key Takeaways
- 01CBA expects RBA to hold rates at 4.35% for the rest of 2026.
- 02Inflation forecasts have been revised upward, indicating potential for an August rate hike.
- 03GDP growth has been downgraded to 1.3%, suggesting a slowdown in economic activity.
- 04The market may not fully price in the risks associated with inflation surprises.
Full Analysis
What the desk is arguing
The desk believes the RBA's decision to hold rates steady through 2026 is indicative of a broader trend towards cautious monetary policy. This perspective is reinforced by Commonwealth Bank's expectation of a 4.35% cash rate being sustained, with potential cuts in 2027 contingent on inflation trends.
Supporting this view, the RBA's latest rate hike was passed with an 8-1 vote, suggesting a stronger consensus among board members compared to previous meetings. The updated inflation forecast indicates a peak of 4.8% in the June quarter, up from 4.2%, which reflects ongoing pressures from the Middle East conflict and higher energy prices.
Where it sits in our coverage
Our consensus target for AUD/USD is 1.075, with a range from 1.04 to 1.12. Firms contributing to this consensus include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This view aligns with jpmorgan and citi, who also expect a stable RBA stance through 2026, while bofa presents a more bearish outlook, forecasting a lower target. The desk's call sits at the upper end of the consensus range, reflecting a more optimistic view on the RBA's ability to manage inflation without aggressive rate hikes.
How other firms see it
Firms like jpmorgan and citi share a similar outlook, anticipating stability in RBA rates through 2026. Conversely, bofa holds a contrary position, projecting a more significant decline in the AUD due to anticipated rate cuts.
Watch the AUD/USD trajectory closely, as it will likely reflect the RBA's monetary policy decisions and inflation data releases. Additionally, the upcoming Q2 CPI report will be critical in shaping market expectations surrounding the RBA's future actions.
Market Implications
Traders should monitor the AUD/USD level around 0.72, as this could act as a resistance point if the RBA signals a pause in rate hikes. The upcoming Q2 CPI data will be pivotal in determining the likelihood of an August rate hike.
From the original
Commonwealth Bank expects the RBA to hold rates at 4.35% for the rest of 2026 before cutting in 2027, though an August hike remains possible if Q2 trimmed mean CPI surprises to the upside. Earlier: Westpac sees upside inflation risks after RBA lifts cash rate to 4.35% in 8-1 vote
Related speeches
4 itemsWestpac sees upside inflation risks after RBA lifts cash rate to 4.35% in 8-1 vote
The desk sees the RBA's recent rate hike as a signal of persistent inflation pressures, particularly influenced by geopolitical factors. Per the full note [source], the RBA raised its cash rate by 25 basis points to 4.35%, with an 8-1 vote reflecting a stronger consensus than the previous meeting. However, the dovish tone from Governor Bullock suggests that while further tightening is possible, the June meeting could see a pause. This nuanced stance is critical as it indicates a balancing act between combating inflation and acknowledging potential economic headwinds.
Reserve Bank of Australia delivers decisive hike, signals balanced path ahead
The Reserve Bank of Australia's recent decision to raise the cash rate to 4.35% marks a pivotal moment in its monetary policy, signaling a cautious yet decisive approach to managing inflation and growth. Per the full note from ing-think, the RBA's move was accompanied by a notable downgrade to the growth outlook, suggesting that the central bank is balancing the need to combat inflation with concerns about economic momentum. With the cash rate now near the upper end of the neutral range, the desk anticipates a hold on rates in the near term unless inflation data surprises significantly to the upside. This nuanced stance reflects a broader trend among central banks grappling with similar challenges globally, particularly as inflation remains persistent in many economies.
Heads up: RBA monetary policy decision set for the bottom of the hour
The desk anticipates a hawkish shift from the RBA, likely raising the cash rate to 4.35% in response to persistent inflation pressures, as highlighted in the recent commentary from Justin Low. This move essentially reverses the brief easing cycle observed earlier in 2025, bringing rates back to levels not seen since 2011. Per the full note [source], the RBA's decision comes amid rising core inflation, currently at 3.5%, and geopolitical tensions that could further complicate their policy stance. With traders pricing in an 82% probability of a rate hike today and additional hikes by September, the market is positioned for a more aggressive RBA in the near term.
RBA set to hike to 4.35% today. NAB sees cash rate peaking near 4.6%.
The Reserve Bank of Australia (RBA) is poised to increase its cash rate by 25 basis points to 4.35%, with National Australia Bank (NAB) projecting a terminal rate of approximately 4.6% due to persistent energy-driven inflation and robust domestic growth. Per the full note [source], this hike would effectively reverse the easing cycle initiated in 2025, reflecting the RBA's commitment to addressing inflation pressures that have intensified amid geopolitical tensions. The upcoming Statement on Monetary Policy (SOMP) is expected to revise growth forecasts downward while raising inflation expectations, indicating a complex economic landscape ahead.
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