RBA raises cash rate to 4.35% in May monetary policy meeting, as expected
At a Glance
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.
Key Takeaways
Full Analysis
What the desk is arguing
The desk views the RBA's decision to raise rates as a necessary step in combating ongoing inflation, which remains a critical concern for the Australian economy. Per the full note source, the market's high expectations for this hike reflect a consensus on the need for tighter monetary policy.
Supporting this view, the RBA's new rate of 4.35% marks a significant adjustment from the previous 4.10%, underscoring the urgency of addressing inflation. The anticipation of further hikes, with about 61 basis points priced in for the remainder of the year, indicates that traders expect the RBA to maintain a hawkish stance in the near term.
Where it sits in our coverage
Our consensus target for AUD/USD stands at 1.075, with a range of 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which sees potential for further appreciation of the Australian dollar, while bofa holds a more cautious outlook, suggesting divergence in expectations among market participants. The desk's call is positioned at the upper end of the consensus range, reflecting a bullish sentiment on the AUD.
How other firms see it
Firms like jpmorgan and citi are aligned with the RBA's hawkish trajectory, anticipating further rate increases as inflation persists. Conversely, bofa and deutsche express skepticism about the sustainability of such hikes, citing potential economic headwinds.
Watch the AUD/USD trajectory closely, as it is likely to reflect the RBA's monetary policy path. Additionally, the interplay with the USD, particularly against the backdrop of the Federal Reserve's own rate decisions, will be crucial in shaping market sentiment.
Market Implications
Traders should monitor the AUD/USD level closely, particularly as it approaches the consensus target of 1.075. Upcoming economic data releases and central bank communications will be key in shaping market expectations.
From the original
Prior 4.10% Statement details to follow... Coming into the meeting, traders were pricing in ~85% odds of a 25 bps rate hike with ~61 bps of rate hikes priced by year-end. More to come.. This article was written by Justin Low at investinglive.com.
Related speeches
4 itemsHeads 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.
CBA 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 minutes: Eight of nine members backed May hike as inflation expectations risk grew
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