Commonwealth Bank expects the RBA to raise rates 25bp to 4.35% in May 5, but warns the decision is line ball given Iran war inflation pressures and softening consumer sentiment.
Commonwealth Bank expects the RBA to raise rates 25bp to 4.35% in May 5, but warns the decision is line ball given Iran war inflation pressures and softening consumer sentiment. Summary: Commonwealth Bank of Australia economists forecast the RBA will raise its cash rate by 25 basis points to 4.35% at its May board meeting, but described the decision as line ball and more precarious than the March hike The case for a hike rests on inflation remaining too high, a labour market still too tight at 4.3% unemployment, and cost pass-through from the Iran war accelerating faster than expected, per CBA The case for holding has strengthened since March, with trimmed mean CPI printing at 0.8% for Q1 2026, below expectations of 0.9%, alongside sharp falls in business and consumer sentiment and emerging cracks in the Sydney and Melbourne housing markets, per CBA CBA expects the RBA’s updated Statement on Monetary Policy to forecast lower GDP growth, higher inflation peaking at 5.1% headline and 3.8% trimmed mean, and higher unemployment, all driven by the Iran war and the higher cash rate profile, per CBA The RBA’s February oil price assumption of $64 per barrel has been overtaken by Brent sitting around $110, while the Australian Trade Weighted Index is approximately 3% higher and the cash rate profile is around 60 basis points above the February forecast peak, per CBA After May, CBA expects the RBA to remain on hold as the economy slows under the combined weight of three rate hikes and elevated energy prices, though a swift resolution to the war and lower energy prices would increase the risk of further tightening, per CBA Markets were pricing approximately a 75%+ probability of a May hike at the time of writing, per CBA Commonwealth Bank economists are tipping the Reserve Bank of Australia to lift its cash rate by 25 basis points to 4.35% at the May board meeting underway, but have described the decision as another line ball call, warning that the meeting feels more…