The Next RBA Interest Rate Decision — Due May 5: What Industry Is Predicting

Australia’s economic spotlight turns to the Reserve Bank of Australia on May 5, when it will hand down its next interest rate decision. For households, businesses and investors, this is not just another routine announcement—it is a critical signal about where the economy is heading.

After two rate increases already in 2026, the question is no longer whether pressure exists, but how the RBA chooses to respond to it.

Where Rates Stand Now

The official cash rate currently sits at 4.10% following a March increase . Inflation has reaccelerated, driven largely by global energy shocks linked to Middle East tensions, pushing consumer prices well above the RBA’s 2–3% target band .

That leaves the central bank in a familiar but uncomfortable position: inflation is too high, but further tightening risks slowing the economy.

The Strong Consensus: Another Rate Rise

Across the banking sector and economic community, the dominant view is clear—rates are likely to rise again.

A large majority of economists expect a 25 basis point increase at the May meeting, which would take the cash rate to around 4.35% . Market pricing reflects this view, with roughly three-quarters probability assigned to a hike .

Surveys of industry experts show similar sentiment, with around 75% predicting a rise .

The reasoning is straightforward: inflation remains elevated, and the RBA must act to maintain credibility in its inflation-fighting mandate.

Why Economists Expect a Hike

The key driver is inflation—particularly energy-led inflation.

Recent data shows inflation climbing to around 4.6%, fuelled by surging petrol prices and broader cost increases . Even though the RBA cannot directly control global oil prices, it can influence expectations—particularly wage growth and pricing behaviour across the economy.

Economists argue that failing to act risks embedding inflation more deeply, making it harder to control later.

There is also a credibility factor. Central banks are judged on their willingness to act decisively, even when the short-term consequences are uncomfortable.

The More Aggressive View: Multiple Hikes Ahead

Some forecasters believe May will not be the end of the tightening cycle.

Major banks have outlined scenarios where rates continue to rise through 2026. For example, Westpac economists are forecasting additional hikes in June and August, potentially pushing the cash rate towards 4.85% .

Others are slightly more conservative but still expect at least one or two further increases this year .

In more extreme forecasts, some economists argue rates may need to climb towards 5% to properly contain inflation, particularly if price pressures broaden beyond fuel and energy .

The Minority View: Hold Steady

Not all voices are calling for a hike.

A smaller group of commentators believes the RBA may pause, at least temporarily. Their argument is that much of the current inflation is supply-driven—particularly from energy—and raising rates will do little to address it.

There is also concern that households are already under significant pressure. Mortgage holders have absorbed two increases this year, and higher petrol prices are acting like a “shadow rate hike” on their budgets.

Some economists suggest the RBA may choose to wait for more data, particularly with the federal budget imminent and global conditions highly uncertain .

The Bigger Picture: A Stagflation Risk

The most difficult aspect of the current environment is that it resembles stagflation—rising prices combined with slowing growth.

The Iran-related energy shock has pushed up inflation while simultaneously threatening global economic activity . This creates a policy dilemma: tightening monetary policy may reduce inflation but also increase the risk of recession.

The RBA is effectively walking a narrow path—tightening enough to control inflation, but not so much that it triggers a sharp downturn.

What It Means for Australians

For mortgage holders, a 25 basis point increase would add further pressure to repayments. On an average loan, this could mean an additional $100 or more per month .

For businesses, higher rates increase borrowing costs and can dampen investment and hiring decisions.

For the property market, further rate rises typically act as a brake on price growth, although supply shortages continue to complicate the picture.

For savers, higher rates can improve returns on deposits, although this benefit often lags behind mortgage increases.

What to Watch on May 5

The decision itself is important—but equally critical will be the language that accompanies it.

Markets and economists will scrutinise:

• Whether the RBA signals more hikes ahead

• Its assessment of inflation persistence

• Commentary on global risks, particularly energy markets

• Its view on the resilience of the Australian economy

Even if the RBA raises rates, the tone of its statement may determine how many more increases are expected.

The Bottom Line

The May 5 decision is shaping as a pivotal moment.

The weight of industry opinion suggests another rate rise is likely. Inflation remains too high, and the RBA is under pressure to act decisively.

But beyond May, the outlook becomes far less certain. Much will depend on global events, particularly energy markets, and whether inflation begins to ease or continues to climb.

For Australians, the message is clear: interest rate pressure is not yet over—and the next move may only be part of a longer, more challenging cycle.