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The RBA Monetary Policy Board lifted the cash rate by 25bps to 4.35% on Tuesday, the third consecutive hike of 2026 and the third consecutive line-ball call delivered with the same answer. The vote, however, was anything but line-ball this time: 8-1 in favour of the hike, with one member preferring to hold at 4.1%. That is a marked tightening from the 5-4 split in March and tells you most of what you need to know about how the Board is reading the data.
Markets were not surprised by the move. ASX 30-day interbank futures had been pricing roughly an 86% probability of the hike going into the meeting. The more interesting question is what happened to the path. Post-decision, the futures curve points to a peak around 4.75% by year-end, broadly consistent with the SoMP commentary that the Board is comfortable with something close to the market path. Westpac sits at the hawkish end with a 4.85% terminal pencilled in for August. CBA is at the other end and now sees the RBA on hold for the rest of the year. The big four are firmly split.
The reasoning was twofold. First, last week’s quarterly Trimmed Mean print at 3.5% confirmed underlying inflation has reversed direction; second, the Middle East fuel-price shock is now expected to feed into broader prices via second-round effects. The May SoMP forecasts headline CPI peaking at 4.8% in the June quarter and the Trimmed Mean peaking at 3.8% in Q2, with underlying inflation not back inside the 2-3% target band until mid-2027 and not back to the 2.5% midpoint until June 2028. Unemployment is forecast to drift up from 4.3% nationally to 4.7% by mid-2028. None of that is a soft landing.
Governor Bullock was direct in the press conference: “We must get on top of inflation now before it gets away from us.” She framed the three hikes as dealing with the inflation problem that pre-dated the Middle East shock, with that already-tighter setting now giving space for the Board to see how the conflict plays out. Translation: the bar for further moves is real, but it isn’t high. If second-round effects feed into wage and price expectations, more tightening is on the table.
The Big Four have already confirmed they will pass yesterday’s 25bp through in full, effective 15 May. The 75bps added since the start of the year will have a cumulative impact on a typical Cairns owner-occupier mortgage of $550,000 over 25 years in the order of $265 a month, or $3,180 a year. This is likely to result in at least some discretionary-spend hit which will land hardest in the parts of the economy already most exposed: domestic tourism, retail, and construction. With Cairns Conus/CBC Staff Selection Trend unemployment at 4.2% in March, the National rate of 4.3% and the QLD rate of 4.0%, the labour market still has a buffer, but the cost-of-living and mortgage-cost squeeze is now meaningfully harder than it was at Christmas.
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