RBA hikes for a third straight meeting. The rate is back at 4.35%.

At its May 5 meeting, the Reserve Bank of Australia (RBA) raised its policy rate (the cash rate) from 4.10% to 4.35%, a hike of 0.25%. The vote was 8 vs 1 (one member argued for a hold at 4.10%). That makes it a third consecutive hike in 2026, in February, March, and May. The increases now total +0.75%.

The backdrop is an inflation flare-up. Underlying inflation (the trimmed mean) has stayed above the top of the target range (2–3%), and higher fuel prices tied to Middle East tensions have raised the upside risks. The statement said "both headline and underlying inflation remain too high" and made clear it would not hesitate to hike further if needed. Governor Bullock said she will "do what it takes" until there is confidence inflation is returning to target.

The RBA hiked from 2022, peaking at 4.35% in November 2023. It then turned to cuts from late 2024, lowering the rate to 3.60% in May 2025. But inflation flared up again, and in 2026 it hiked three times in a row. In this May the rate returned to 4.35% — having climbed down the mountain only to climb back to the same summit.

This "round trip" shows how the fight against inflation is anything but straightforward. Inflation that once came down reaccelerated on higher energy prices, undoing the cuts. The current 4.35% is the same level as the previous peak, but it differs decisively in that it was "reached again by hiking," not "maintained by holding." The market's focus has shifted to whether this becomes a new ceiling or merely a waypoint.

The latest (Q1) CPI (consumer prices) was +4.6% year on year. The underlying inflation the RBA watches (the trimmed mean) was +3.3%, still above the top of the 2–3% target range. As long as the underlying trend sits outside the band, the RBA cannot move to cuts — rather, it is pushed toward further hikes.

The RBA's inflation target is not a pinpoint "2%" like the US, Europe, or Japan, but a "range of 2–3%." As long as underlying inflation exceeds the top of this band, the RBA has no choice but to keep tightening. Curb inflation with hikes, or pause out of concern for growth — the May meeting chose the former.

Monetary policy is decided through debate among the nine members of the Monetary Policy Board, and in recent years the vote breakdown is also published. Tracing the three hikes of 2026 reveals how the committee, after "hesitation," converged on hiking.

The most divided was March's 5 vs 4 — the moment the committee split right down the middle over whether to rush hikes or take a cautious stance. By this May it tilted decisively toward supporting a hike at 8 vs 1. In the face of sticky inflation, the committee's view is firming up around "continued tightening." The decision comes at 2:30 pm Sydney time, with Governor Bullock holding a press conference an hour later.

Three consecutive hikes steadily raise the borrowing burden on households and businesses. Australia has many variable-rate mortgages, so the effect of hikes reaches households directly. As it tightens to curb inflation, the RBA must walk a tightrope against the risk of chilling the economy and the housing market too much.

Hikes usually favor a stronger Aussie dollar, helping it stay firm against the US dollar. At the same time, Australian bond yields rise, and the equity market (ASX 200) tends to find its upside capped as it dislikes higher rates. For the RBA, the challenge of squaring inflation control with supporting growth continues.

There are eight meetings a year, roughly every six weeks. At the February, May, August, and November meetings, the detailed quarterly Statement on Monetary Policy (SMP) is published. With this meeting's hike (5/5) over, the next is June 15–16.

The market's focus is whether the June meeting delivers a fourth consecutive hike or shifts to a wait-and-see stance. Whether underlying inflation falls back toward the target range (2–3%) will drive the next decision. The outlook presented in the May SMP (Statement on Monetary Policy) will be the clue.

The Australian dollar is a leading commodity currency, swayed by the RBA's rate and by China and commodity markets. Three consecutive hikes usually help support the Aussie dollar. Against the yen, Australia's high rates have underpinned Aussie-buying and yen-selling. The rate gap with Japan remains very wide.