AUD: RBA divided on rate hike, creating uncertainty over final rate – Standard Chartered

RBA Raises Rates, but Leans Toward Holding Steady

Nicholas Chia, a strategist at Standard Chartered, highlights that the Reserve Bank of Australia (RBA) increased its cash rate to 4.10% following a narrow 5-4 vote. The primary discussion among board members centered on when to adjust rates, rather than whether to do so. While the RBA still anticipates a final rate hike to reach a 4.35% peak in the second quarter, there is a growing possibility that rates may remain unchanged, as current market expectations appear overly aggressive.

On March 17, the RBA lifted the cash rate to 4.10%, aligning with forecasts. The accompanying statement pointed to mounting capacity constraints caused by robust demand in the latter half of 2025, referencing stronger-than-expected GDP growth in the fourth quarter.

The RBA also mentioned that persistently high oil prices could further elevate headline inflation, emphasizing ongoing risks to both inflation and inflation expectations.

During a press conference, Governor Bullock dismissed claims that she and Deputy Governor Hauser had advocated for a rate increase in their speeches before the blackout period. She explained that the latest rate hike was primarily a response to excessive demand in the economy, though she acknowledged that rising oil prices complicate efforts to control inflation in the short term.

The board’s main disagreement revolved around the timing of the rate adjustment. Those favoring a pause preferred to observe how international developments, particularly sustained high oil prices, might impact global economic growth before making further moves.

Although the RBA maintains its outlook for a final rate increase to a 4.35% terminal rate in the second quarter, the likelihood of holding rates steady has increased. The central bank may be reluctant to tighten policy for a third consecutive meeting in May, and its latest statement did not support the aggressive rate hike trajectory anticipated by futures markets, instead emphasizing that policy remains flexible and responsive to new developments.

(This report was generated with assistance from AI and subsequently reviewed by an editor.)