Australia braces for RBA rate call as fuel-driven inflation set to peak near 5%

Australia is bracing for a finely balanced interest-rate decision when the Reserve Bank of Australia meets on June 16, with economists divided over whether the central bank will raise its cash rate again or pause after lifting it to 4.35% in May. The decision, due at 2:30 p.m. on the Tuesday, comes as a fresh surge in fuel prices threatens to keep inflation elevated for longer.

The RBA has warned that higher fuel costs are feeding through to the broader economy, with second-round effects on the prices of other goods and services compounding capacity pressures recorded earlier in the year. In its baseline forecast, the bank expects headline inflation to peak at 4.8% in the June quarter of 2026 before easing.

Markets and economists are split on how the RBA will respond. Commonwealth Bank economists expect the central bank to pause in June following May's hike, arguing it can afford to wait and watch whether inflation is easing sustainably. Westpac economists, by contrast, see scope for another increase as price pressures remain stubborn.

Signs of a cooling labor market have strengthened the case for caution. Employment fell by almost 19,000 in the most recent data and the unemployment rate rose to 4.5%, figures some economists cite as a reason for the RBA to hold rather than risk choking off growth. The bank has also revised down its expectation for economic growth in 2026 to 1.3%, from 1.8%.

Much of the inflation story traces back to the conflict in the Middle East, which has driven up global crude prices and, with them, the cost of petrol at Australian pumps. That external shock has complicated the RBA's task, forcing it to weigh imported price pressures against clear signs that domestic demand is softening.

Whichever way the board moves, the decision will be closely watched by mortgage holders already squeezed by elevated borrowing costs. A further hike would add to repayment burdens, while a pause would signal the RBA believes the peak in rates may be near even as inflation has yet to be brought firmly back to target.