Reserve Bank makes third rate call for 2026

Following March’s cash rate hike by the RBA, major banks Westpac and Commbank predicted another rise; find out here whether it has decided to hike, hold, or cut interest rates.

At its March 2026 meeting, the Reserve Bank of Australia monetary policy board decided to raise the cash rate to 4.10 per cent.

Today (Tuesday, 5 May), the RBA board decided to increase the cash rate by 0.25 per cent, bringing it to 4.35 per cent – the third consecutive rate rise following a hikeless two years (since November 2023).

Inflation has picked up materially in the second half of 2025, with information confirming that some of this increase reflects greater capacity pressures. The hike was a majority decision, with eight board members voting for an increase and one voting for a hold.

In a statement, the board said: “As expected, developments in the Middle East are having an impact on inflation. 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.”

“In light of these considerations, 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. It was therefore judged appropriate to increase the cash rate target.”

“The board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market. Having raised the cash rate three times, monetary policy is well placed to respond to developments, and the board is focused on its mandate to deliver price stability and full employment. It will do what it considers necessary to achieve that outcome.”

Employment Hero APAC managing director James Keene said this rate hike forces businesses into a defensive posture, with SMEs reducing hiring and delaying investment amid rising borrowing costs and the decrease in consumer demand, according to Employee Hero data.

“The labour market is shifting to a more cautious approach, with casual employment growing more than twice the rate of full-time roles, up 9.2 per cent year on year, which tells us businesses are actively avoiding long-term workforce commitments in an uncertain environment. Wage growth has been flat for three consecutive months and shows no signs of shifting,” Keene said.

“These aren’t just numbers; it’s businesses making increasingly difficult trade-offs. Businesses need certainty to invest in their people, and right now, they’re not getting it – it’s a trend we can’t afford to ignore.”

Carlos Tse

Carlos Tse is a graduate journalist writing for Accountants Daily, HR Leader, Lawyers Weekly.

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