Private Credit Weekly Insights - 11 May 2026

The Reserve Bank of Australia (RBA) raised the cash rate by 25bps to 4.35% at its May 2026 meeting. The move marks the third consecutive rate increase this year and takes policy further into restrictive territory, with the Board prioritising inflation control amid a clear shift in risks to the upside.

The escalation of conflict in the Middle East has materially increased inflationary pressures via higher oil, fuel, and transport costs, with the RBA highlighting growing evidence of second-round effects across goods and services. The central bank reiterated that inflation was already elevated prior to the conflict due to domestic capacity constraints; the current shock is acting as an accelerant, broadening and entrenching price pressures rather than driving them in isolation.

This dynamic has heightened concern around inflation expectations. The RBA signalled rising risk that expectations become less anchored as firms pass through higher costs, increasing the likelihood of a more persistent inflation cycle and raising the bar for returning inflation to the 2–3% target band.

Governor Michele Bullock used her press conference to underscore the challenge of containing domestic inflation amid prospective fiscal expansion. This comes ahead of this week’s Federal Budget, where Jim Chalmers is expected to announce further cost-of-living relief, adding to measures already in place, such as the fuel excise discount.

This third consecutive 25bps rate hike was broadly anticipated, reflecting mounting global shocks layered onto an economy already experiencing elevated inflation. Many economists expect a near-term pause to allow prior tightening to flow through and dampen demand, with markets pricing the next hike at the August meeting. However, ongoing global volatility and the prospect of expansionary fiscal policy present clear upside risks. These factors could see the RBA bring forward further tightening, leaving multiple additional hikes this year firmly in play.

Source: Reserve Bank of Australia, Statement of Monetary Policy, May 2026.