Australia the ‘global outlier’ preparing for rate hike

Yasmine Raso

Senior Journalist

4 May 2026

Market commentators and economists pricing in a third consecutive cash rate hike by the Reserve Bank of Australia (RBA) tomorrow have moved to label the country a “global outlier”, given several of the world’s central banks have held their rates steady in the face of the energy shock.

With holds from the US Federal Reserve and Bank of Japan and expected pauses to come from the Bank of England, European Central Bank and Bank of Canada, the latest commentary from HSBC chief economist, Paul Bloxham, has determined that Australia is grappling with contradictory conditions.

“The key difference is that the economy starts off with inflation that is too high, even before the full impact of the Middle East conflict energy price shock arrives in the figures,” he said.

“This week’s Q1 CPI print showed the trimmed mean at 3.5% y-o-y, which is well above the RBA’s 2.5% target. Inflation has been supported by an economy that has been operating beyond its sustainable capacity, with an unemployment rate that is below the central bank’s estimates of full employment.

“The two hikes the RBA has already delivered were in response to the local inflation challenge. The energy shock is expected to push inflation higher in Q2.

“In addition, because of a tight jobs market and above-trend growth, the local risk is higher than elsewhere that high inflation could become embedded in higher inflation expectations.”

This comes as Finder’s RBA Cash Rate Survey found that 75 per cent of the 36 economists weighing in expect the local central bank to increase the official cash rate by 25 basis points tomorrow.

“Another rate rise would take the cash rate back to its 2024 peak, but the economic environment is tougher now,” Richard Whitten, home loans expert at Finder, said.

“Inflation has continued to rise in that time, meaning Australians are in an even worse position than they were two years ago.

“While default rates remain low, and the RBA likely believes borrowers can handle a slightly elevated rate, it’s hard to imagine rates going much higher without something breaking.”

What is more, 52 per cent of 27 of the experts told the survey they expect the next cash rate hike to come as soon as August this year.

James Morley from the University of Sydney was one of few forecasting a hold in tomorrow’s decision.

“This meeting will be a close call. But the fact that underlying measures of inflation did not go up too much in the March report and developments in the Middle East, including UAE leaving OPEC, may well lead the RBA to hold at this meeting as a way of moderating the pace of rate increases given the conflicting tensions of a supply shock on inflation and the real side of the economy.

“Prior to the inflation report, I thought the RBA would increase, in part in anticipation of an expansionary federal budget.

“But I suspect they will hold, with a statement that this is a matter of pace in terms of increasing the cash rate given inflationary pressures and that, if inflation measures, including underlying, come in higher than expected in future reports, the oil price shock looks more persistent, and other considerations such as domestic demand pressures following the budget look inflationary, then they may well increase further in future meetings to ensure their forecast has inflation returning to target soon after the oil price shock has dissipated.”

Bloxham shared some of the same sentiment, but noted that the RBA would still be inclined to adopt a “generally hawkish tone”.

“There have already been signs that the ‘dual shocks’ of rate rises and the increase in fuel prices have already driven the economy into a downturn, with a recent sharp decline in business and consumer sentiment.

“Despite this, we expect the Board’s focus at the May meeting to be the high-inflation challenge. We expect a hike in May and limited forward guidance but a generally hawkish tone.

“Whether the RBA delivers further tightening beyond May will depend on how quickly the economy weakens. We see a recent sharp weakening in sentiment as a clear signal that a downturn is already underway.

“Our central case is that, beyond the May hike, the RBA remains on hold. However, if the economy does not weaken as quickly as we forecast, then another hike by the RBA after the May meeting is a risk.”