RBA Review: More Hikes to Come

The RBA has increased the cash rate to 3.85% in the February meeting as Inflation continues to run hot. The inflationary picture has turned hot after the Q3, partially from previous year's energy rebate base effect but also suggest stronger underlying inflation. The rate hike is mostly priced in and thus the forward guidance in cash rate assumption is the real hawkish surprise. 

In the latest cash rate assumption, the RBA is seeing two more hike to 4.2% by year end 2026. It came as a hawkish surprise with most market participants expecting only one more hike this year. Their CPI forecast has also been revised higher, with headline shooting to 4.2% in mid 2026 before retreating back with target range in mid 2027. Trimmed mean CPI is also revised 0.5% higher throughout 2026. Moreover, the RBA is visualizing a stronger labor market and more economic growth for Australia in 2026.

While the forward guidance "The Board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome."  is quite a similar rhetoric, the forecast in private demand seems to be driving RBA to the hawkish end of the road. We believe their forecast on inflation is too aggressive and could only see more more rate hike in 2026.