UOB Economist Lee Sue Ann expects the Reserve Bank of Australia (RBA) to keep the cash rate at 4.10% through 4Q26, after a split decision hike in March driven by Iran-related energy shocks and a strong labour market. The bank’s base case is for a pause, but it warns that persistent inflation and energy-driven second‑round effects could still trigger another rate increase.
Pause base case but hike risk lingers
“Our base case remains that the RBA holds the cash rate steady from here, reflecting our view that the confidence shock from recent geopolitical developments, together with higher energy prices, will weigh on household and business demand and contribute to a gradual rise in the unemployment rate.”
“That said, there is considerable uncertainty around any point forecast at this juncture.”
“Against this backdrop, we see a risk of an additional rate hike at the next monetary policy meeting on 5 May, when the RBA will have the benefit of updated projections for growth, labour market conditions and inflation.”
“Ultimately, the evolution of the labour market and shifts in consumer inflation expectations will be critical in determining whether the RBA prioritises growth risks and holds policy steady or instead tightening to guard against inflation persistence.”
“A complicating factor for the Australian rates market is that yields had already been moving higher well before the US-Israel-Iran conflict, as the RBA shifted its stance from easing in 2025 to tightening in 2026 to address capacity constraints and upside inflation risks.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/rba-energy-shock-keeps-inflation-risks-elevated-uob-202603250856
