RBA May 2026 Decision: Third Consecutive Rate Hike to 4.35%

Updated 7 May 2026: This article has been updated with the official RBA decision delivered on 5 May 2026. The original article was published as a preview on 20 April 2026 and projected a rate cut based on market pricing at that time. The actual outcome was a third consecutive rate hike.

The Reserve Bank of Australia raised the official cash rate by 25 basis points to 4.35 per cent at its May 2026 meeting — the third consecutive hike this year, and a decision that fully reverses all three cuts delivered in 2025.

The board voted 8-1 to increase the rate, a significantly more decisive majority than the 5-4 split at the March meeting. The RBA warned that inflation is likely to remain above target for some time and left the door open to further hikes.

This article is general information only and does not constitute financial advice. Consult a licensed financial adviser for advice specific to your circumstances.

What the RBA decided — at a glance

Why the RBA hiked for a third time

Two forces drove the May decision.

March quarter CPI came in hot. The Australian Bureau of Statistics released headline inflation of 4.6 per cent in the 12 months to March 2026 — up sharply from 3.7 per cent in February and the highest reading since September 2023. Transport prices surged 8.9 per cent as fuel costs flowed through, electricity was up 25.4 per cent, and housing costs remained elevated at 6.5 per cent. Trimmed mean inflation — the RBA’s preferred underlying measure — held at 3.3 per cent, well above the 2–3 per cent target band midpoint.

The Middle East conflict is feeding through broadly. The RBA board noted that higher fuel prices are not just a one-off shock — they are beginning to generate second-round effects across goods and services pricing more broadly. The board said this inflation impulse is “in addition to the high inflation recorded around the start of 2026, reflecting capacity pressures in the economy.”

The RBA warned that “underlying inflation will peak higher than it anticipated in February” and that inflation “is likely to remain above target for some time.”

What the major banks got wrong — and where they now stand

Heading into the May meeting, all four major banks forecast a 25bp cut to 3.85 per cent. Market pricing put the probability of a cut at around 95 per cent. The actual outcome — a 25bp hike — was a significant surprise to consensus.

Following the decision, the banks revised their forecasts:

Westpac is the most hawkish of the four, forecasting two additional 25bp hikes in June and August 2026, which would bring the cash rate to 4.85 per cent. Westpac’s view is supported by the CAMA RBA Shadow Board, which placed a 70 per cent probability on rates needing to go higher over the next six months.

ANZ, CBA and NAB have all shifted to a hold forecast for June while they reassess the inflation trajectory. None are currently forecasting further hikes beyond May, but all three have withdrawn their earlier easing projections for 2026.

The key data point that will shape June is the April 2026 CPI, due in late May. If fuel prices continue to feed through, further hikes remain on the table.

What three hikes mean for mortgage holders

The May decision brings total RBA tightening in 2026 to 75 basis points. Banks began passing on the May increase almost immediately — with variable home loan rates rising 0.25 percentage points effective 22 May 2026 for most major lenders.

Combined with the February and March hikes, the cumulative increase to a typical variable rate mortgage since the start of 2026 is approximately 75bp.

Approximate monthly increase in repayments — cumulative 75bp tightening in 2026:

These are approximate figures based on a standard principal and interest variable rate loan. Actual increases depend on your lender, loan structure and current rate.

For households already under pressure, this is on top of elevated electricity, fuel and grocery costs. For the broader picture of how mortgage stress is tracking, see Australia mortgage stress 2026.

What the RBA’s statement signalled about what comes next

Three things in the May statement are worth noting for what they say about future meetings.

The board “will do what it considers necessary.” This is forward guidance that deliberately avoids committing to a pause. The RBA is keeping all options open for June.

Updated inflation forecasts are higher near-term. The Statement on Monetary Policy released alongside the May decision shows the RBA has lifted its near-term inflation forecasts, but still expects inflation to return toward target by 2028 — assuming fuel prices eventually ease.

The 8-1 vote is more decisive than March’s 5-4. A single dissenter voted to hold. This suggests the majority of the board believes current rates are not yet sufficiently restrictive, which is consistent with the Westpac view that further hikes are coming.

The June meeting on 15–16 June 2026 will be shaped primarily by the April CPI data, due in late May. For the full RBA meeting schedule and past decisions, see RBA interest rates 2026.

What this means for savers

A rate hike has the opposite effect for savings account holders — higher rates mean better returns on deposits. High interest savings accounts and term deposits have become more attractive through the 2026 tightening cycle. If further hikes follow, savings rates will likely rise further.

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Updated 7 May 2026. This article is general information only and does not constitute financial advice. Sources: RBA official website | ABS CPI March 2026 | RBA meeting schedule 2026