RBA lifts cash rate target to 4.35%
Sydney (5 May)
The Reserve Bank of Australia (RBA) has increased its cash rate target from 4.1% to 4.35% because of Iran war-related fuel price hikes and existing inflationary pressures, it said on 5 May.
RBA expects Australia’s consumer inflation rate to remain above its 2-3% target band until mid-2027 and only return to its 2.5% target by mid-2028, it said today. The bank has forecasted a peak annual consumer inflation rate of 4.8% in June 2026.
RBA’s baseline forecast assumes that Brent crude oil prices peak at $100/barrel (A$140/barrel) in April – June 2026, before falling to $75/barrel over the next two years. Brent crude futures traded at $113.18/barrel on 5 May, data from Trading Economics show.
RBA’s forecast depends on Iran quickly reopening the Strait of Hormuz and allowing shipping flows to restart, the bank said.
But tensions near the Strait have escalated in recent days.
The United Arab Emirates shot down 12 ballistic missiles, four drones, and three cruise missiles from Iran on 4 May, the country’s Ministry of Defence said today. Iran’s drone and missile barrage came hours before the US Central Command announced that it had targeted Iranian boats near the Strait of Hormuz.
Iran, the US, and Israel halted bombing campaigns and missile barrages on 16 April, following Pakistan-brokered ceasefire talks.
Australian financial conditions have tightened since the RBA’s February meeting because of the US-Israeli war in Iran – partly because of cash rate expectations – but economic indicators suggest that the country faces continued labour market tightness, the bank said.
Consumer and business confidence also declined in March, though this has not translated into reduced household spending, the RBA said.
Nominal household spending increased by 6.3% on the year in March, partly because of elevated transport-related spending, data from the Australian Bureau of Statistics (ABS) show. Spending increased on the year across every product category except for alcohol and tobacco in March, ABS data show.
RBA noted that short-term inflation expectations have increased since the start of 2026, increasing the risk of inflationary pricing and wage-setting behaviour, in its Monetary Policy Statement today.
By Avinash Govind