RBA’s Michele Bullock hints hikes beyond 4.35%

Australia’s central bank just got a lot more hawkish again. On May 5, the Reserve Bank of Australia lifted its cash rate by 25 basis points to 4.35%, and Michele Bullock made clear the problem is not just one bad inflation print. The bank thinks price pressure is broad enough — and the global oil shock serious enough — that inflation could stay above target for longer than it expected a few months ago. That is why people are reading this as more than a routine hike. (rba.gov.au) ### What actually happened? The RBA’s Monetary Policy Board raised the cash rate from 4.10% to 4.35% on Tuesday, May 5, 2026. That was the third increase this year, after moves in February and March, and it takes rates back to the same level Australia had before the RBA started cutting in 2025. In other words, last year’s easing has now been fully unwound. (r([rba.gov.au)## Why did Bullock move now? The bank’s own explanation was blunt. Inflation picked up materially in the second half of 2025, capacity pressures in the economy have persisted, and the Middle East conflict has pushed fuel and related commodity prices sharply higher. The RBA also said firms facing higher costs are already looking to raise prices, and short-term(rba.gov.au) banks hate — a supply shock that starts leaking into everyone’s pricing behavior. (rba.gov.au) ### So did she hint at hikes beyond 4.35%? Basically, yes — though not in the clean “we will hike again” way markets always want. The key signal was that the board said inflation is likely to remain above target for some time and that risks are still tilted to the upside. Reuters also reported the vote was 8-1 in favor of hiking, a much more hawkish split than(rba.gov.au)able tightening further if needed. (rba.gov.au) ### Why is oil such a big deal here? Because fuel does not stay in the fuel line. It moves through freight, food, services, and business costs more broadly. The RBA’s baseline forecast assumes the Middle East conflict eases soon and fuel prices come down, but it also spelled out a nastier scenario — a longer or more severe conflict could push energy prices up (rba.gov.au)expectations. That is the nightmare loop Bullock is trying to avoid. (rba.gov.au) ### What are markets hearing? They are hearing “maybe pause, but don’t relax.” Reuters said markets had already heavily priced the May hike, but still implied around a 20% chance of another move in June, with 4.60% by September fully priced. That matters because it means traders think 4.35% may not be the ceiling if the oil shock lingers or domestic inflation stays sticky. (money.usnews.com) ### Is this just about imported inflation? No — and that is the catch. The RBA said some of the inflation increase since early 2026 reflects domestic capacity pressures, not just global energy. So Bullock is dealing with two problems at once: homegrown inflation that was already uncomfortable, and an external shock that can make it worse fast. That is a much harder setup than a one-off petrol spike. (rba.gov.au) ### What does this mean for households? Higher rates hit borrowers immediately, but Bullock also warned they will not stop the first wave of war-driven inflation in the next few months. That means Australians could get the ugly mix of higher mortgage costs, slower growth, and still-rising prices at the same time. ABC summed up the mood well — the near-term inf(rba.gov.au) stop it becoming embedded. (abc.net.au) ### Bottom line? Bullock did not promise another hike. But she absolutely left the door open. The message was simple — 4.35% is the new rate, not necessarily the final one, and whether Australia goes higher now depends a lot on whether an oil shock turns into a lasting inflation problem. (rba.gov.au)