MUFG’s Senior Currency Analyst Lee Hardman notes that the RBA delivered a second consecutive 25 bps hike to 4.10%, now the highest policy rate among G10 central banks, and that Australian Dollar gains versus the US Dollar were initially strong but faded. Despite a narrow 5–4 vote and Governor Bullock’s cautious guidance, markets still price further RBA tightening as inflation risks stay elevated.

RBA split vote but hawkish bias

"The main development overnight was the RBA’s decision to tighten monetary policy for the second consecutive meeting. The policy rate was raised by a further 25bps to 4.10% which is now the highest rate amongst G10 central banks. The Australian dollar initially strengthened in response to the rate hike hitting a high of 0.7094 against the US dollar but has since given back all of those gains."

"Today’s decision to raise rates reflected the RBA’s judgement that “there is a material risk that inflation will remain above target for longer than previously anticipated”. Information since February suggested that some of the increase in inflation reflects greater capacity pressures due in part to greater momentum in demand in the latter part of 2025."

"The RBA did judge though that inflation is likely to remain above target for some time and that risks have “tilted further to the upside” leaving the door open to further hikes."

"Despite the close vote, Australian rate market participants currently expect the RBA to hike rates again as soon as the next policy meeting in May. In the press conference, Governor Bullock emphasized that today’s decision doesn’t say anything about the forward policy path. She couldn’t say whether this is a front-loading of rate hikes or this is one of many rate hikes."

"Overall, the hawkish comments relating to inflation risks from the conflict support market expectations for two further hikes this year. Rising yields in Australia remain a tailwind for the Aussie alongside higher commodity prices which have both helped it to outperform this year. The energy price shock would have to deliver a bigger negative global growth shock and deeper risk asset correction to trigger a reversal of Aussie strength."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)