MNI RBA Review-May 2026: Hikes Give RBA “Space”

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EXECUTIVE SUMMARY: 

• In an 8-1 vote the RBA hiked rates 25bp to 4.35% as was widely expected. This was the third consecutive increase and brought rates back to where they were before 2025’s easing. 
• The RBA believes that policy is now a “bit restrictive” but that tightening has given it “space” to monitor risks in both directions to growth, employment and inflation. Thus it could pause in June.
• While modestly softer than pre-RBA levels, OIS pricing continues to show tightening across all meetings, with the probability of a 25bp hike rising from 26% for June to 107% by September and 144% by December 2026.
• The May hike was driven by “indications” that higher fuel prices would likely have “second-round effects on prices for goods and services more broadly” and that the Iran War is already “adding to inflation”.