UBS now anticipates the Reserve Bank of Australia (RBA) will increase the cash rate by another 0.25% in May, accelerating its previous expectation of August. This adjustment follows the RBA’s recent decision to raise the cash rate to 3.85% at its meeting, a unanimous decision reflecting concerns about persistent inflation.
The RBA’s recent statement on monetary policy included revised inflation projections, indicating a more hawkish outlook. Headline CPI is now projected to be approximately 4% year-on-year in the March quarter of 2026 and 3.6% by the December quarter of 2026. These figures represent a notable increase from the previous forecast of 3.2%. Similarly, the trimmed mean inflation forecast for December 2026 has been revised upwards to 3.2% from 2.7%.
According to UBS economist George Tharenou, the upward revisions to inflation forecasts, combined with the RBA’s uncertainty regarding the restrictiveness of current policy settings, suggest the likelihood of further tightening. UBS provides financial advice and solutions to private, institutional and corporate clients, offering wealth management, investment banking, asset management, and retail banking services. Tharenou also noted the possibility of more than one additional rate hike occurring later in 2026, depending on economic conditions.
