Australia
May 2026
The Reserve Bank of Australia (RBA) raised the cash rate by 25 basis points to 4.35% from 4.1%, marking a third hike, as it remains committed to its mandate of price stability and full employment. The RBA cautioned that the ongoing conflict in the Middle East could generate second-round effects on goods and services prices more broadly. It also noted that inflation is likely to remain above its target for some time, with risks skewed to the upside.
April 2026
Sticky inflation and volatile energy market have caused most central banks to reassess their interest rate policies. Inflation expectations have shifted higher and Reserve Bank of Australia (RBA) appears to poised to raise interest rates again in the near future. RBA is more likely to prioritize anchoring inflation expectations through further monetary policy tightening.
Australian economy faces stagflation risk. The sharp rise in fuel prices due to Middle East tension is expected to feed through to the higher inflation. This can potentially weaken the economic growth weighing on household disposable incomes and squeezing business profit margins. However, RBA needs to be careful not to overtighten when the economy shows signs of contracting, with the employment falling, unemployment rate rising and financial stability concerns coming to the fore.
March 2026
The Reserve Bank of Australia (RBA) is already of the view that the economy is operating above its potentials. RBA judges that the economy cannot grow more than 2% without generating inflationary pressures. This was the reason why it raised interest rate in February by a quarter point to 3.85% as inflation re-accelerated after the rate cuts in 2025. RBA raised cash rate again by 25bps to 4.10% in its March meeting delivering second consecutive hike as policymakers intensify efforts to contain the inflation.
Domestic economic conditions – stronger-than-expected private demand, lower-than-anticipated unemployment, a tighter labour market and demand growth outpacing supply, keeping upward pressure on prices – reinforced the view that the economy remains above its sustainable level. The central bank’s focus has shifted toward price stability, supported by the resilient labour market. Policymakers are mindful that elevated energy costs could entrench inflationary pressure if not contained. The outlook will depend on how the conflict evolves, the trajectory of energy prices, and how households respond to higher borrowing costs and rising living expenses. Although households have relatively strong savings, the combined effect of rate hikes and higher petrol prices can weigh on income growth and spending. The RBA path forward will be contingent on both domestic data and global developments.
February 2026
The Australian economy demonstrated resilience supported by a gradual recovery in private demand, stable household incomes, and robust public spending. However, the tight labor market started to show signs of softening and Australian economy’s persistent low productivity growth remains as a key challenge.
In response to the renewed price pressures, Reserve Bank of Australia (RBA) raised the official cash rate to 3.85% in February, which is the first since late 2023. RBA tries to curb persistent inflation without derailing economic growth amid labour market beginning to ease.