Heads up: RBA monetary policy decision set for the bottom of the hour
At a Glance
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.
Key Takeaways
- 01RBA expected to raise cash rate to 4.35%, reversing previous easing.
- 02Core inflation remains elevated at 3.5%, complicating RBA's policy decisions.
- 03Traders pricing in ~82% odds of a rate hike today, with further hikes expected by September.
- 04Geopolitical tensions add uncertainty to the economic outlook.
Full Analysis
What the desk is arguing
The desk frames this as a critical juncture for the RBA, as the anticipated rate hike reflects ongoing concerns about inflation that have persisted despite previous easing efforts. The RBA's cash rate adjustment back to 4.35% is a clear indication that they are not yet finished in their battle against inflation, especially with core inflation remaining above the target range of 2% to 3%.
Supporting this view, the RBA has been on a hawkish tilt since the start of the year, with inflationary pressures exacerbated by geopolitical events, particularly the US-Iran conflict that has driven energy prices higher. The commentary notes that any further hikes could push rates to levels last seen in 2008, which underscores the urgency of the RBA's situation.
Where it sits in our coverage
Our consensus target for AUD/USD sits at 1.075, with a range from 1.04 to 1.12. Notably, jpmorgan has set a target of 1.10 for March 2026, while bofa is more conservative with a target of 1.04 for the same period.
This view aligns with the broader market sentiment, as the desk's call is positioned at the upper bound of the consensus range, suggesting a more aggressive outlook compared to some firms that remain cautious.
How other firms see it
Firms aligned with a hawkish stance include jpmorgan and citi, both anticipating further rate increases from the RBA. In contrast, bofa and deutsche bank express a more cautious outlook, suggesting that the RBA may need to pause to assess the economic impact of rising rates.
Watch the AUD/USD trajectory closely, as it will likely reflect the RBA's policy decisions and the evolving inflation landscape. Additionally, the interplay between the RBA and the US Federal Reserve will be critical in shaping market expectations.
What the calendar says
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Market Implications
Traders should monitor the AUD/USD level closely, particularly if the RBA signals a pause after today's hike. The market's reaction to the RBA's communication will be crucial in determining the trajectory of the Australian dollar in the coming weeks.
From the original
In bringing the cash rate back to 4.35%, the RBA will have essentially reversed its brief easing cycle in 2025. This will then bring interest rates back to the recent peak levels seen during 2024, which followed from rate hikes during 2022 to 2023. So much for being done with the
Related speeches
4 itemsCBA sees RBA on hold for rest of 2026 after third consecutive hike to 4.35%
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.
RBA raises cash rate to 4.35% in May monetary policy meeting, as expected
The Reserve Bank of Australia (RBA) has raised its cash rate to 4.35% in the May monetary policy meeting, a move anticipated by market participants. Per the full note [source], traders had priced in approximately 85% odds of a 25 basis point increase, with expectations for a total of around 61 basis points of hikes by year-end. This decision aligns with the broader trend of central banks tightening monetary policy in response to persistent inflationary pressures. As the RBA continues to navigate these economic challenges, market reactions will be closely monitored for further directional cues.
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.
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.
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