The Reserve Bank of Australia (RBA) is edging closer to another interest rate increase, with Deputy Governor Andrew Hauser warning that current policy may not be restrictive enough to bring inflation back to the 2–3% target range.
RBA seen leaning toward 25 bp hike
Analysts at TD Securities now expect a 25-basis-point rise at the RBA’s next policy meeting. They cautioned that the cash rate could move beyond the current 4.35% level if inflation pressures, particularly from energy, continue.
Hauser’s comments in New York underscored that the board is not yet confident that existing settings will return inflation to target. His remarks signal a growing willingness to act if prices remain stubborn.
Inflation risk outweighs growth concerns
The deputy governor indicated a shift in the RBA’s risk balance, suggesting the board is now more concerned about the dangers of entrenched inflation than the possible drag on growth from another rate hike.
This marks a departure from the bank’s earlier neutral tone and effectively prepares markets for a renewed tightening phase if upcoming data fail to show a clear easing in price pressures.
Oil prices add to policy pressure
Hauser highlighted that inflation remains above desired levels and that higher oil prices, driven by instability in the Middle East, are feeding through to broader costs in the economy.
Internal RBA analysis last month suggested that if oil holds near $100 per barrel, higher petrol prices alone could push headline inflation to around 5% year-on-year in the June quarter. That would be well above the 2–3% target band.
On those estimates, TD Securities said tighter policy may be required beyond May to counter the inflationary impact of elevated energy prices.
Current settings and recent data
The RBA last raised the cash rate to 4.35%, previously stressing that any further move would depend on the trajectory of inflation. Hauser’s latest comments indicate that, in the face of persistent price pressures, the bar for another hike may now be lower.
Figures from the Australian Bureau of Statistics show the Consumer Price Index rose 3.6% in the year to the March quarter of 2026, remaining clearly above target. The unemployment rate sits at 4.1%, a relatively low level that gives the board more room to tolerate tighter financial conditions.
Currency and market reaction
Higher interest rates typically make the Australian dollar and interest-bearing securities more attractive, drawing capital toward assets that offer a yield and away from more speculative positions.
The Australian dollar has already strengthened, with AUD/USD recently touching 0.6580, as markets price in the prospect of the RBA diverging from other major central banks that are moving closer to rate cuts.
Oil still below RBA trigger, but rising
Brent crude is trading around $88 per barrel, still below the $100 level referenced in the RBA’s internal scenario. However, the benchmark has climbed nearly 15% since the start of the year.
That steady rise is already lifting transport and production costs across the economy. Policymakers see this as a strong argument for pre-emptive action to keep these cost pressures from becoming embedded in wage and price expectations.
Data in focus ahead of next meeting
Traders will closely watch the upcoming monthly CPI indicator and retail trade data, which are expected to be pivotal for the RBA’s next decision.
Stronger-than-expected readings on inflation or consumer spending would likely cement the case for what would be the first rate hike since November 2023, reinforcing the central bank’s shift toward a more hawkish stance.
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