Reuters poll: RBA to hike 25bps to 4.35% on May 5, say 30 of 33 economists. Over a third now see rates at 4.60%+ by year-end vs none in March. Strait of Hormuz closure keeps oil above $100; CPI at 4.1%.
Summary:
- A Reuters poll of 33 economists conducted April 27 to 30 found 30 expect the RBA to raise its cash rate by 25 basis points to 4.35% at its May 5 meeting, a third consecutive increase
- More than a third of forecasters now see rates reaching 4.60% or higher by the end of 2026, compared with none in the March poll, representing a significant shift in the distribution of terminal rate expectations in just one month
- The RBA has been raising rates since early February 2026, with inflation having remained above its 2% to 3% target since mid-2025
- Annual CPI rose to 4.1% in the most recent quarter from 3.6%, partly reflecting higher fuel prices; core CPI edged up to 3.5% from 3.4%
- The Strait of Hormuz closure, a route through which roughly a fifth of global oil supply passes, has kept crude prices mostly above $100 a barrel, with oil briefly trading above $126 this week
- Economists note that even if the Strait reopened immediately, trimmed mean inflation is expected to spike in the second quarter as the energy shock feeds through to core price measures
- The RBA's experience in 2025, when underlying inflation rebounded almost immediately after it cut rates, is seen as having shifted the board's risk tolerance toward maintaining higher rates for longer
- A majority of economists, 18 of 31, still expect the cash rate to hold at 4.35% through year-end, but that majority has narrowed sharply
- Among the major banks, ANZ, CBA and NAB expect rates to peak at 4.35%, while Westpac forecasts a higher peak of 4.85%
- Inflation is expected to average 3.8% this year, up from a pre-war forecast of 3.1%, while the median GDP growth forecast remains unchanged at 2.2%
- Entrenched inflation expectations are flagged as the primary risk, with economists warning that a failure to act decisively could embed higher expectations that become significantly harder to reverse
The Reserve Bank of Australia is on course to deliver its third consecutive interest rate increase on May 5, taking the cash rate to 4.35% and fully reversing the cuts made last year, as the closure of the Strait of Hormuz keeps oil prices elevated and Australia's inflation problem proves more persistent than policymakers had hoped.
Thirty of 33 economists surveyed by Reuters between April 27 and 30 expect the 25 basis point move, a near-unanimous view that reflects both the strength of the incoming inflation data and the RBA's own recent history. The central bank began tightening in early February after CPI remained above its 2% to 3% target throughout the second half of 2025. The most recent quarterly figures showed annual inflation accelerating to 4.1% from 3.6%, with core CPI also edging higher to 3.5% from 3.4%, suggesting the energy shock is beginning to spread beyond headline prices.
The Strait of Hormuz is the defining variable. The closure of the waterway, through which approximately a fifth of global oil supply passes, has kept crude prices mostly above $100 a barrel, with prices briefly spiking above $126 this week. Economists note that the inflation consequences are no longer purely a headline fuel price story. Even if the Strait were to reopen tomorrow, trimmed mean inflation is now expected to accelerate in the second quarter as the cumulative energy shock works its way through transport, production and services costs.
The more significant development in this month's poll is not the May decision itself but the rapid shift in expectations beyond it. In the March poll, not one economist forecast rates reaching 4.60% or higher by year-end. More than a third do now. Among the major banks, the division is stark: ANZ, CBA and NAB see rates peaking at 4.35%, while Westpac is forecasting a higher terminal rate of 4.85%, citing the RBA's scarring experience from 2025 when underlying inflation rebounded almost immediately after the easing cycle began.
That experience looms large over the current deliberations. The risk of cutting too soon and being forced to reverse course has clearly shifted the RBA's risk calculus, and economists warn that the board will be particularly alert to any signs of inflation expectations becoming entrenched. If consumers and businesses begin to price in sustained higher inflation, the cost of bringing it back under control rises considerably. Inflation is now forecast to average 3.8% this year, up from a pre-war projection of 3.1%, while the growth outlook, at a median of 2.2%, has held relatively steady for now.
Reserve Bank of Australia Governor Bullock threepeat coming up!
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A third consecutive RBA hike is now near-certain, but the more significant market development is the shift in the distribution of rate expectations beyond May. A month ago, not one economist in the Reuters poll saw rates reaching 4.60% or higher this year. More than a third do now. That is a rapid and material repricing of the terminal rate outlook, and it is being driven by a specific concern: that core inflation, not just headline, is beginning to accelerate in response to the energy shock.
The Strait of Hormuz closure is the critical variable. Oil briefly trading above $126 a barrel this week, with prices mostly holding above $100, means the inflation impulse is not fading. The RBA's own recent experience of cutting prematurely in 2025 only to see underlying inflation rebound will make the board cautious about signalling any pause. Australian dollar rate markets and the currency itself will be sensitive to any language in the May 5 statement that hints at the pace of future moves.
