May 2026
The Reserve Bank of Australia (RBA) Board decided to increase the cash rate by 0.25% to 4.35% at its May meeting.
The move was in line with expectations given the RBA is clearly in a hiking cycle and wants to ensure inflation expectations become tethered at lower levels or stop rising at the very least.
The move continues the clear ongoing messaging to policymakers this calendar year that adjustments are required to correct a demand (spending) / supply (productivity) imbalance.
Key changes from the March statement were as follows:
- Noting there are early signs that many firms experiencing cost pressures are looking to increase prices of their goods and services.
- The Bank’s updated forecasts incorporating developments in the Middle East now sees underlying inflation peaking higher than was expected in February. However, this assumes the conflict is resolved soon.
- Showing clear concern that higher fuel prices will have second round effects on prices for goods and services.
- Clear the Board is uncomfortable with this additional inflation pulse considering the high inflation recorded at the start of the year.
The statement noted that today’s decision was 8-1, with one member voting to hold. This was in stark contrast to March’s very tight 5-4 vote to increase. The telling May vote shows there was a strong majority in favour of acting on inflation.
Following the announcement, Australian government bond yields fell (prices higher), the AUD/USD fell before recovering, and Australian equities moved higher, possibly implying investors might be hopeful the RBA is done. Time will tell.
Written by Christopher Lioutas
Chairman – Harbourside Investment Management
