A Third Hike in Australia’s Official Cash Rate
May 5, 2026
After three straight 25-basis point increases of the Reserve Bank of Australia‘s Official Cash Rate, the rate level of 4.35% is back to this decade’s high maintained from November 2023 until February 2025 and matches the otherwise most restrictive level since early 2011. Australian consumer price inflation of 4.7% stands at a 30-month high. A statement from the RBA explains,
Higher fuel prices are adding to inflation and there are indications that this is likely to have second-round effects on prices for goods and services more broadly. This inflation impulse is in addition to the high inflation recorded around the start of 2026, reflecting capacity pressures in the economy.
While there was one vote in the 8-1 decision that favored keeping the OCR at the prior 4.10% level due to concern that the economy may slow more sharply than anticipated, “the Board assessed that inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations.” Future interest rate decisions are to be data dependent, which suggests that more hikes are a better that even bet since the baseline scenario assumes the war ends comparatively soon. The challenge of balancing the upside inflation risks against slowing economic activity is hardly unique to Australia’s central bank.
Copyright 2026, Larry Greenberg. All rights reserved.
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