The Reserve Bank of Australia raised its policy cash rate by 25 basis points to 4.35 per cent and indicated further tightening could not be ruled out, with its May Statement on Monetary Policy forecasting headline inflation to peak around 4.8 per cent in mid-2026.
The board cited higher global oil prices, the persistence of services-sector inflation and a still-tight labour market. Underlying inflation is expected to remain above 3 per cent until mid-2027 in the bank's baseline forecast.
Market participants now price the cash rate reaching 4.7 per cent by the end of 2026, implying at least one further 25-basis-point step in the second half of the year. Mortgage holders on variable rates face further increases of about A$80 a month per A$500,000 borrowed at the new rate.
Treasurer Jim Chalmers said the budget remained on track to be roughly A$11.4 billion better off this financial year and another A$15 billion ahead in 2026-27, helped by surging commodity prices and reforms to the National Disability Insurance Scheme.
GDP growth is forecast a touch lower than in the bank's previous outlook, reflecting the impact of fuel costs and the assumed higher rate path on household and business spending. Unemployment is expected to drift up modestly from current levels near 4 per cent.
Governor Michele Bullock said the bank would remain "data-dependent" but warned that another sustained jump in oil prices could force a re-evaluation. The next decision is scheduled for July.