RBA set to hike to 4.35% today. NAB sees cash rate peaking near 4.6%.
At a Glance
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.
Full Analysis
What the desk is arguing
The desk posits that the RBA's anticipated rate hike is a necessary response to escalating inflationary pressures, particularly from energy prices, which have complicated the central bank's policy options. Per the full note source, the Q1 trimmed-mean inflation rate of 3.5% year-on-year underscores the urgency for the RBA to act, as this figure exceeds the bank's target range of 2% to 3%.
NAB's analysis highlights that the combination of above-potential growth and a labor market operating near capacity leaves little room for the RBA to treat the current inflation shock as transitory. The expected upward revision of the terminal rate to around 4.6% signals a significant shift in monetary policy outlook that could impact various sectors, including housing and consumer spending.
Where it sits in our coverage
Our consensus target for the Australian dollar is 1.075, with a range from 1.04 to 1.12. Key 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, which anticipate a tightening trajectory, while bofa remains more cautious, suggesting a lower target. The desk's call is positioned at the upper end of the consensus range, reflecting a more aggressive outlook on rate hikes.
How other firms see it
Firms such as citi and jpmorgan are aligned with the desk's view, expecting further tightening from the RBA in response to inflationary pressures. Conversely, bofa holds a contrary stance, predicting a more tempered approach to rate hikes.
The trajectory of the AUD/USD pair will be closely linked to the RBA's decisions, as well as broader market reactions to inflation data and geopolitical developments affecting energy prices.
What the calendar says
With the RBA's rate decision scheduled for today, the market is keenly awaiting the accompanying SOMP, which will provide updated economic forecasts. This event is critical as it will shape expectations for future monetary policy and influence market positioning significantly.
From the original
National Australia Bank expects the RBA to hike 25bp to 4.35% on Tuesday, with updated forecasts likely to show a terminal rate of around 4.6% as energy-driven inflation and above-potential growth limit the bank's options. Earlier: CBA tips RBA rate hike tomorrow but warns Iran w
Related speeches
4 itemsCBA tips RBA rate hike tomorrow but warns Iran war makes it a close call. Split RBA board
The desk anticipates a 25 basis point rate hike from the RBA to 4.35% at the May meeting, driven by persistent inflation pressures exacerbated by the ongoing Iran conflict. However, this decision is precarious, with softening consumer sentiment and signs of economic slowdown complicating the outlook. Per the full note from Commonwealth Bank of Australia, the inflation trajectory remains concerning, with headline CPI expected to peak at 5.1%. Market expectations are currently pricing in a 75% probability of this hike, reflecting a significant shift in sentiment since the March meeting.
Economic and event calendar in Asia 5 May 2026, Reserve Bank of Australia rate hlke day!
The Reserve Bank of Australia (RBA) is poised for a 25 basis point rate hike today, driven by inflationary pressures exacerbated by geopolitical tensions, particularly the ongoing conflict in Iran. Per the full note from Eamonn Sheridan at investinglive.com, this marks the RBA's third consecutive hike, reflecting a split board that is nonetheless leaning towards tightening. The market is closely watching this decision, especially given the potential for a hawkish stance from Governor Bullock regardless of the outcome, indicating a strong commitment to combat inflation. The consensus among analysts suggests a significant focus on the implications of the Hormuz Strait situation on inflation dynamics, which could influence future monetary policy.
NAB calls June RBA hike to 4.60% as Middle East inflation compounds domestic pressures
The desk anticipates a rate hike from the RBA to 4.60% in June, driven by escalating inflation pressures both domestically and from the Middle East conflict. Per the full note [source], NAB's analysis highlights that the RBA cannot afford to let inflation run unchecked, especially following a significant rise in purchase costs reported in their March Business Survey. This view diverges sharply from peers like ING and CBA, who expect a pause after the recent hike to 4.35%. The upcoming RBA meeting on June 15-16 will be pivotal in determining market sentiment around these forecasts.
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.
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