Second hike likely in May after RBA lifts cash rate to 3.85%  

Strong demand and low supply prompts the RBA to act

The Reserve Bank of Australia lifted the cash rate to 3.85 per cent at the February meeting, saying Australians are still spending strongly and borrowing more, which is keeping inflation higher for longer. After reviewing the data over summer, the bank now thinks the economy is running hotter than it can comfortably handle.

It also says financial conditions aren’t as tight as it first thought. Rising home prices, more lending and easier access to credit are adding extra pressure on inflation.

“Inflation is simply too high for the RBA at this stage, and the central bank has signalled a stronger resolve to bring it back within target,” Commonwealth Bank Head of Australian Economics Belinda Allen said.

“This is ultimately a fine‑tuning exercise. But unless inflation materially undershoots in the March quarter, the RBA is unlikely to pause in May.”

Another rate rise tipped for May

CBA’s economists expect the RBA to lift the cash rate again in May, taking it to 4.10 per cent. They say the RBA’s board is unlikely to have enough evidence by then to show that the February rate rise is sufficiently slowing demand.

The RBA has also revised its inflation forecasts higher, now expecting trimmed mean inflation at 3.7 per cent in the year to June 2026, up from 3.2 per cent previously. Inflation isn’t expected to return toward the middle of the target band until 2028.

Growth outlook softens beyond next year

The RBA’s expectations of economic growth have been revised higher in the near term, but growth is then expected to weaken from 2026 as tighter financial conditions take hold. The RBA forecasts GDP growth of 1.6 per cent as at December 2027, with unemployment rising to 4.6 per cent by mid-2028.

Belinda Allen’s full analysis: RBA lifts the cash rate by 25bp as expected, one more to come