RBA tipped to press ahead with third straight rate rise

This marked the fiercest monthly increase since the ABS began the series in 2017.

Annual inflation is now at its highest since September 2023, primarily due to the impacts of the oil price shock sparked by the conflict in the Middle East.

The March‑quarter numbers painted a similar picture, with headline CPI rising by 1.4 per cent and the RBA’s preferred trimmed mean measure climbing 0.8 per cent to 3.3 per cent, leaving it running above the 2–3 per cent target band.

On the labour side, conditions remain firm enough to give the central bank room to continue tightening, according to the major banks – with the unemployment rate holding steady at 4.3 per cent.

Majors line up behind another 25‑point move

All four major banks believe the RBA will press ahead with another hike this month – yet diverge on how many more moves may follow.

Australia and New Zealand Banking Group’s (ANZ) head of Australian economics, Adam Boyton, said the March numbers had not shifted the bank’s near‑term call.

“Despite the softer than expected Q1 trimmed mean print of 0.8 per cent q/q, we continue to expect the RBA to increase interest rates by 25bp at its May meeting,” he said.

The Commonwealth Bank of Australia (CBA) is also pencilling in a move to 4.35 per cent – but was more explicit about the divisions inside the central bank.

“We expect the RBA to hike the cash rate in May by 25bp to 4.35 per cent, yet a third rate hike is likely to be another line-ball decision,” said CBA’s head of Australian economics, Belinda Allen.

Allen said the softer core print and rapidly deteriorating sentiment would strengthen arguments inside the board for a May pause.

“If anything, the dissenters from March could be more strident in their views with today’s slightly softer CPI print adding to the case,” Allen said.

NAB, meanwhile, said it expects a single May hike followed by an extended pause period.

“For now, we continue to see one more 25bps hike by the RBA in May before they remain on hold until mid‑to‑late 2027,” NAB’s head of Australian economics, Gareth Spence, said.

Westpac chief economist Luci Ellis is taking the most hawkish view on the rate path, believing a May hike to be baked in, with more rate hikes to come later this year, too.

“We reaffirm our expectation that the RBA Monetary Policy Board will raise the cash rate by a further 25bps at its May meeting, to 4.35 per cent,” she said.

“The RBA could look through higher fuel prices if that was all that was happening, but it is not. Pass‑through to other (non‑fuel) prices is clearly starting.”

Ellis added that Westpac’s base case remained for “two further rate hikes after May, in June and August”, with NAB, CBA and ANZ flagging a single May rise followed by a lengthy pause into mid to late 2027.

Market pricing is broadly aligned with the major banks, with the ASX 30 Day Interbank Cash Rate Futures May 2026 contract trading at 95.745 on 1 May, implying about a 74 per cent chance that the cash rate would be raised to 4.35 per cent.

Finder’s latest survey of economic experts showed that 75 per cent were predicting a hike.

Broker view, market odds and expert surveys point to hike

Brokers are also increasingly convinced that the May cash rate decision will result in a cash rate increase. Evolve Lending and Finance managing director Mark Stevenson said the current cash rate of 4.10 per cent was above the 1990–2026 average of 3.87 per cent.

He said while he believed the RBA was “likely to lift” official rates to 4.35 per cent, he noted that this would take the cash rate to the same level endured by borrowers throughout 2024 but still below the highest official rate since November 2011 (when it was 4.5 per cent).

Stevenson stressed that RBA board members were navigating a difficult balancing act.

“While they would be hesitant to punish consumers already dealing with higher fuel prices thanks to the Middle East conflict, the RBA board is focused on taming inflation,” Stevenson said.

The brokerage MD cautioned that further tightening beyond today’s move could not be ruled out if global tensions persisted.

“Unfortunately, rates will be rising again, and the RBA could go even further in the coming months and take the cash rate above 4.5 per cent… where it hasn’t been since 2011,” he said.

Calls for a pause

While expectations are broadly for a May rate hike, market researchers Roy Morgan have argued that the RBA should hold its rate tightening cycle for now, pointing to deteriorating business and consumer confidence readings, which have slumped to historic lows.

The business confidence index fell 14.2 points in April to 76.5, below the previous low of 76.9 reached in 2020, with 61.3 per cent of firms expecting “bad times” for the economy over the next year.

Consumer sentiment is even weaker, according to the ANZ‑Roy Morgan index, with the gauge sitting at 67.8 – among the seven lowest readings on record.

Six of those seven have occurred in the past six weeks.

“The Reserve Bank should not raise interest rates [in May] with business confidence and consumer confidence at, or near, record lows and real unemployment near a record high,” it said.

Roy Morgan warned that another rate hike would deepen mortgage stress, tilt unemployment higher, and perhaps push the economy into recession.

“A further increase to official interest rates, tomorrow will increase mortgage stress, real unemployment and under‑employment and ensure the damage to the Australian economy is needlessly increased and a likely deep recession guaranteed,” it said.

[Related: Softer CPI fails to shift majors’ May hike forecasts]