🏦🇦🇺RBA Likely to Hold Rates In June: Cable FX Macro

• The RBA's Monetary Policy Board increased the target for the official cash rate by 25 basis points to 4.35% (effective 6 May 2026). This marks the third straight 25bp hike in 2026 (following hikes in February and March).

• Inflation: The headline CPI is now forecast to reach a peak of 4.8% in mid-2026 (higher than in the February projection). The underlying inflation rate (trimmed mean) is expected to remain above 3% until mid-2027, before easing back towards the target band of 2-3% by mid-2028. The Board observed clear signs of second-round effects from higher fuel prices feeding into broader prices. Growth and Activity: Domestic demand growth is likely to moderate over time as capacity pressures ease in response to tighter monetary policy and higher interest rates. Growth forecasts have been revised downwards from previous expectations.Risks: The Middle East conflict raises the level of uncertainties significantly. The baseline assumes a quick resolution of the conflict and falling fuel prices, but plausible downside risks include higher inflation and weaker activity (e.g. prolonged energy price shocks or weaker global growth). Risks to inflation are generally tilted to the upside including risks to inflation expectations

• Unless the following inflation data points materially surprise to the upside, the RBA is likely to stay on hold in June after lifting rates for each of its last three meetings. The board is well aware of downside risks appearing from the labor market side of the equation. Its communication is clearing the path for a potential hold.