AU: RBA interest rate decision
Date: Tuesday, 5 May at 2.30pm AEST
At its March meeting, the RBA raised its official cash rate by 25 basis points (bp) to 4.10% in a tight 5 – 4 decision. This marked the second consecutive hike after February and reflected the board’s concern that inflation could remain above the 2% – 3% target band for longer than previously expected due to capacity pressures and sharply higher fuel prices stemming from the Middle East conflict.
Since the March board meeting, domestic data have presented a mixed picture. Headline CPI in March jumped to 4.6% YoY from 3.7%, largely driven by a 32.8% surge in petrol prices, while the trimmed mean measure remained steady. Meanwhile, the labour market has remained resilient, with unemployment holding around 4.3%.
On the softer side of the ledger, household spending and house‑price growth have shown some moderation. Consumer and business confidence remain weak, and petrol prices have fallen back towards pre‑conflict levels.
This reversal in petrol prices, one of the biggest contributors to March’s CPI rise, alongside softer indicators, now offers the RBA a narrow pathway to an unexpected pause next week.
Such a pause would give the RBA more time to assess upcoming data, including consumer and business confidence, household spending, employment and the April inflation report, ahead of the 16 June Board meeting. It would also allow time to gauge developments in the Middle East stalemate and assess any tightening in the Federal Government’s budget, due on 12 May.
Putting it together, while a pause cannot be ruled out, the probability remains tilted towards the RBA raising rates by 25 bp next week to 4.35%. This would mark the RBA’s third hike this year, fully unwinding last year’s 75 bp of rate cuts.
Ahead of the meeting, Australian interest rate markets are pricing around 18 bp of tightening for next week and a cumulative 64 bp of hikes through 2026.