RBA Rate Outlook Splits Big Banks as Market Still Prices 1 More Hike

Q: With Australia's economy stalling, can the RBA risk another rate hike to control inflation?

Yes — the RBA can justify another rate hike, but it would be a high-risk move in an economy already close to stall speed. The case for tightening is clear. Inflation is still above target, with headline CPI around 4.6% and underlying inflation above 3%, while the RBA expects fuel-driven price pressures to keep inflation elevated into 2027. The bank’s bigger fear is not just oil itself, but “second-round” effects: higher fuel costs feeding into transport, food, retail prices and wage demands. Governor Michele Bullock and Assistant Governor Sarah Hunter have both signaled that if inflation expectations drift higher, rates may need to rise to protect the RBA’s 2–3% credibility. That is why some economists, including Westpac’s team and REA’s Luc, still see one more hike, with the RBA’s own May baseline consistent with the cash rate reaching about 4.7% by end-2026. But the risks are substantial. Growth has slowed sharply, with GDP up just 0.3% in the March quarter, consumer confidence near historic lows, productivity weak and household debt extremely high. Higher rates will not fix the oil shock itself; they mainly suppress demand, raising the danger of a policy-driven recession. Critics argue this would amount to a double hit: imported inflation from energy, then weaker spending from tighter policy. So the RBA can risk another hike, and may do so if expectations worsen. But it is balancing inflation credibility against a real chance of deepening the slowdown.

3 articles · Updated · realcommercial.com.au · Jun 15

ANZ, NAB and CBA now expect the RBA’s next move to be a cut, while Westpac still forecasts a hike before later easing.
4.35% is the current cash rate, but lower fixed mortgage rates and falling bond yields show banks and traders increasingly expect softer growth and lower inflation ahead.
The split turns on whether an oil-driven supply shock should trigger policy action: one camp says higher rates would only deepen a growth hit, while the other says they are needed to restrain inflation expectations.
4.75% minimum-wage growth and still-elevated petrol-sensitive inflation expectations bolster the hawkish case, with the market still seeing one more hike as slightly more likely than not by year-end.