【True Insight Hong Kong Stock Experts】The Reserve Bank of Australia has raised interest rates twice this year, with another hike in May not ruled out.

Amid market concerns that the blockade of the Strait of Hormuz will lead to a surge in oil prices and reignite inflation globally, the Reserve Bank of Australia (RBA) announced a 0.25 percentage point interest rate hike this week, raising the benchmark rate to 4.1%, returning to the level of April last year. This marks two consecutive meetings with rate hikes to combat stubborn inflation and the pressure from rising energy costs due to escalating conflict in Iran. This is also the first time the RBA has raised rates consecutively since mid-2023.

The nine-member policy committee passed the resolution with a 5-4 vote, indicating internal disagreement. Following the announcement, the yield on 3-year government bonds widened its decline, and traders increased their bets on another rate hike in May, with the probability rising above 50%.

The RBA stated that conflict in the Middle East has led to a sharp rise in fuel prices, and if this situation persists, it will further push up inflation. Short-term inflation expectation indicators have already risen, so the board judged that raising interest rates was a reasonable course of action. The committee believes that inflation may remain above the target range for some time, and risks, including inflation expectations, are clearly skewed to the upside.

Australia's economic fundamentals are strong, with 2025 GDP annual growth reaching a three-year high of 2.6%, expected to be 2.1% in 2026 and 2.4% in 2027; actual GDP in the last quarter reached AUD 693.77 billion, growing about 0.8% quarter-on-quarter. The inflation rate recorded 3.8% in January 2026, exceeding the central bank's 2% to 3% target range. As a result, the RBA had already raised rates to between 3.85% and 4.1% in February this year. The unemployment rate remains low at around 4.1%, indicating strong labor demand.

Consumer inflation expectations for March have risen to 5.2%, the highest since July 2023.

The RBA stated that the inflation rate saw a substantial rebound in the second half of last year. Data since the February meeting shows that the rise in inflation reflects, to some extent, greater capacity pressures. The central bank pointed out that the Middle East conflict poses a significant risk globally. A more protracted or severe conflict could exert further upward pressure on global energy prices, which would boost short-term inflation. If the Middle East conflict damages supply capacity, or if price increases are factored into long-term inflation expectations, it could further exacerbate future inflation. Higher prices and prolonged uncertainty could lead to slower economic growth among Australia's major trading partners and in Australia itself.

The RBA also noted that financial conditions have tightened slightly since the beginning of the year, but the extent of monetary policy tightening remains uncertain. Households and businesses can still easily access credit, and the impact of the 2025 interest rate cut on overall demand, prices, and wages has not yet fully materialized. Exchange rates, money market rates, and government bond yields have all risen over the past month. Higher interest rates largely reflect market expectations for the direction of monetary policy.

Against this backdrop, most economists expect the RBA to raise rates again in May, at which point the cash rate could be raised to 4.35%, equivalent to fully reversing the 75 basis points of cuts made during the RBA's six-month easing cycle last year.

(Written by: Professor Li Huifen, Greater Bay Area Family Office Association)

(The author does not hold any of the above stocks)