RBA Governor Michele Bullock said more interest rate rises are possible if inflation stays high. She said the board will keep relying on new data and will keep reviewing its forecasts.
The RBA expects both headline and core inflation to remain above its 2–3% target band this year. This comes after the latest cash rate rise to 3.85%, with another increase possible if needed.
Inflation Expectations Reaccelerate
Australia’s February consumer inflation expectations rose by 0.4 percentage points to 5.0% on the 30% trimmed mean measure. This pushed expectations back above 5% after seven straight months below that level.
The rise in expectations was cited as support for lifting the cash rate target to 3.85%. The article notes it was produced using an artificial intelligence tool and reviewed by an editor.
There are signs that more rate hikes could follow if inflation does not ease. Governor Bullock has said inflation is still too high. This view is backed by the January 2026 monthly CPI, which came in at 3.6%. Ongoing price pressure is keeping the Australian dollar and local bond yields sensitive to new data.
This looks similar to what we saw through 2025, when sticky inflation kept the RBA leaning hawkish. A key worry now is that consumer inflation expectations have risen again to 4.5% in the latest February report. The Board watches this closely because higher expectations can feed into future price rises.
Market Implications For Rates And FX
For rates traders, this points to a risk that yields move higher. Traders may look at positions that benefit from a steeper yield curve, or trades that assume the cash rate peaks above what markets currently price in. The recent move in the 10-year government bond yield above 4.30% supports this hawkish view.
For currency markets, this backdrop can support the Australian dollar, especially against currencies where central banks are more dovish. Traders may consider strategies that benefit from AUD strength, such as buying AUD/USD call options. This gives upside exposure while limiting risk if the RBA unexpectedly turns more cautious.
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