What did the Reserve Bank of Australia decide at its May meeting?

The Reserve Bank of Australia debated whether to hold interest rates steady or increase them, ultimately deciding to lift the cash rate by 0.25 percentage points to 4.35%. This mark-up represents the central bank's third consecutive interest rate hike.

Why did the Reserve Bank of Australia choose to raise interest rates in May?

The RBA raised rates due to growing anxiety that current financial conditions are not tight enough to bring inflation back to its target. While the board acknowledged that higher rates cannot stop immediate fuel price spikes caused by the Middle East conflict, the hike was deemed necessary to prevent a broader, sustained inflationary spiral across the economy.

How many more rate hikes does the Reserve Bank of Australia forecast for this year?

The RBA’s baseline economic forecasts assume an additional 0.6 percentage points of interest rate hikes before the end of the year. This indicates that retail investors and traders should prepare for a higher-for-longer interest rate environment rather than a pivot to rate cuts.

What are the RBA’s predictions for Australian inflation and GDP growth?

The RBA expects headline inflation to peak at 4.8 per cent in the June quarter, with underlying inflation failing to return to the 2.5 per cent target mid-point until mid-2028. Consequently, domestic gross domestic product (GDP) growth is projected to slow materially and fall below its long-term potential.

How will the RBA's May policy outlook affect the Australian job market?

Tighter monetary policy and geopolitical headwinds are expected to soften labour demand and weaken economic activity. The RBA forecasts that the Australian unemployment rate will climb to 4.7 per cent by mid-2028 as the board balances its dual mandates of price stability and full employment.

What worst-case economic scenarios is the Reserve Bank of Australia modelling?

The RBA simulated two adverse scenarios where prolonged conflict in the Middle East drives up energy costs over a longer period. The central bank warned these scenarios would spike short-term inflation and could sharply damage consumer confidence, significantly weakening overall economic demand.

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RBA minutes reveal intense debate over rate rise

Written by Mahathir BayenaPublished May. 19 2026Last Updated May. 19 2026

The Reserve Bank of Australia seriously weighed up whether to lift interest rates or hold them steady at its May meeting before ultimately executing a third consecutive 0.25 percentage point increase to 4.35%.

Newly released minutes reveal the central bank’s growing anxiety that financial conditions are not yet restrictive enough to tame inflation, a risk severely compounded by escalating conflict in the Middle East.

Board members conceded that while monetary policy cannot block near-term fuel price spikes, a rate hike was vital to stop these costs from triggering a broader inflationary spiral.

The RBA is now planning for a prolonged inflation battle and materially weaker domestic growth.

Baseline forecasts assume a further 0.6 percentage points of rate hikes this year, with headline inflation expected to peak at 4.8% in the June quarter.

Under this grim outlook, gross domestic product growth will slow below potential, underlying inflation will not return to the 2.5 per cent target until mid-2028, and unemployment will climb to 4.7%.

The board also simulated two adverse scenarios where extended geopolitical conflict drives up energy costs, crippling consumer confidence and dragging down demand.

In balancing its inflation and employment objectives, the RBA warned that the Middle East shock will inevitably soften labour demand.

However, the immediate priority remains anchored on ensuring medium-term inflation expectations do not become de-anchored.