Will the RBA lift Interest Rates

With the Reserve Bank of Australia (RBA) meeting tomorrow, borrowers across the country — are asking the same question: Will rates go up again, or is the RBA prepared to pause?

The short answer is: the decision is finely balanced, but the odds are leaning towards a rate rise. Below, I break down what the RBA is looking at, how the current fuel crisis plays into the decision, and what it could mean for mortgage holders.

Will the RBA lift interest rates tomorrow?

The RBA Board meets on 4–5 May, with the decision announced on 5 May 2026 at 2.30pm AEST.

The current official cash rate sits at 4.10%, following several increases aimed at bringing inflation back into the RBA’s 2–3% target range.

The Big Question: Will Rates Rise?

The Case for a Rate Rise

Right now, markets and most major banks are predicting a rate hike.

• Interest‑rate markets are assigning around a 70–75% probability of a 25 bp increase at the May meeting. [rateprobability.com]

• Several major banks (including ANZ and Westpac) are forecasting a hike, citing elevated inflation pressures driven by fuel and energy costs. [msn.com], [westpaciq.com.au]

Likelihood of a Rate Rise: ~70–75%

The Case for Holding Steady

There is still an argument for the RBA to pause, but I believe this is unlikely:

• Underlying inflation (the trimmed mean) has not accelerated sharply, remaining around 3.3% in March — elevated, but stable. [investordaily.com.au]

• Consumer confidence is very weak, and fuel prices are already acting as a form of “unofficial tightening” on household budgets. [theconversation.com]

• Some economists argue the RBA may wait to see whether the fuel shock proves temporary before adding pressure via higher rates.

Likelihood of No Change: ~25–30%

 

What About the Fuel Crisis — Does It Matter?

Yes — a lot, but not in a simple way.

Australia is dealing with a significant fuel supply shock, driven by Middle Eastern conflict and disruptions to global supply routes. Fuel prices surged sharply in March:

• Automotive fuel prices jumped over 30% month‑on‑month

• Headline inflation rose to 4.6% annually, up from 3.7% the month prior [investordaily.com.au]

However, fuel prices are considered volatile. The RBA tends to look through short‑term spikes unless they spill into broader price growth — a phenomenon known as second‑round inflation. This is where the concern lies. Banks like Westpac now believe higher fuel costs are flowing into freight, food, and services, increasing the risk inflation remains higher for longer. [westpaciq.com.au], [westpac.com.au]

How Is Inflation Really Tracking in Australia?

The RBA looks at more than the headline number.

Key Inflation Measures:

• Headline CPI: 4.6% (March 2026) — driven mainly by fuel [investordaily.com.au]

• Trimmed Mean (RBA’s preferred measure): ~3.3% annually [rba.gov.au]

While trimmed mean inflation hasn’t exploded higher, it remains above the RBA’s comfort zone, and inflation expectations have lifted close to 6%, which concerns policymakers. [tradingeconomics.com]

Other Key Indicators the RBA Is Watching

Inflation isn’t the only factor.

Labour Market

• Unemployment remains low at 4.3%

• Full‑time employment growth has remained strong [investordaily.com.au]

Household Spending

• Spending is slowing, but not collapsing

• Higher fuel costs are squeezing discretionary budgets [abc.net.au]

Inflation Expectations

• Consumer inflation expectations are rising again, which the RBA is keen to prevent becoming “locked in” [tradingeconomics.com]

What Does This Mean for Mortgage Holders?

If Rates Rise:

• Variable loan repayments will likely increase again within weeks

• Borrowers rolling off fixed rates could face higher refi stress

• Lenders may tighten serviceability slightly further

If Rates Hold:

• Some short‑term relief for household cash flow

• Doesn’t necessarily mean rates won’t rise later in the year

Even if the RBA pauses next week, most economists expect rates to stay higher for longer, particularly if fuel‑driven cost pressures persist.

What Should Borrowers Do Right Now?

✔ Review your current interest rate

✔ Check whether your loan is still competitive

✔ Understand your cash‑flow buffers

✔ Consider whether fixing, refinancing, or restructuring makes sense

 

Final Thoughts

Next week’s RBA decision is shaping up as one of the most closely watched in years.

The fuel crisis complicates the picture — easing some demand but intensifying inflation risks. With underlying inflation still elevated and the labour market holding firm, the balance of probability points to one more rate rise, though a pause remains possible.

If you’re unsure how this decision could affect your mortgage,

getting personalised advice matters more than ever.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.