Could the RBA still raise rates twice this year?
Westpac sees inflation remaining a challenge
While financial markets increasingly expect the Reserve Bank of Australia (RBA) to leave interest rates unchanged in June, some economists believe the tightening cycle may not be over yet. Westpac’s chief economist Luci Ellis has suggested that inflation remains high enough to keep further rate increases on the table later this year.
The view highlights the growing divide between expectations of a near-term pause and concerns that inflation pressures may persist for longer than anticipated.
June pause appears likely
According to Westpac, the RBA is expected to keep rates steady at its upcoming meeting, allowing policymakers more time to assess how previous rate increases are affecting the economy.
Recent economic data has delivered mixed signals, with softer consumer spending and housing activity contrasting against ongoing inflationary pressures and resilient business investment.
Inflation remains above target
Although inflation forecasts have been revised slightly lower, underlying inflation is still expected to remain well above the RBA’s target range. Headline inflation is forecast to reach approximately 4.4% in Q2 before rising to around 4.7% later in the year, while trimmed mean inflation is projected to peak near 3.8%.
These levels remain significantly above the RBA’s preferred midpoint target of 2.5%, suggesting policymakers may still have work to do.
Strong investment activity adds complexity
Another factor influencing the outlook is continued investment across parts of the economy. Large-scale spending on data centres, infrastructure projects, and related industries is helping support economic activity despite weaker consumer demand.
This resilience could make it harder for inflation to return to target as quickly as policymakers would like.
Markets and economists remain divided
Investors are increasingly debating whether Australia is nearing the end of its rate-hiking cycle or simply entering a temporary pause. While softer consumer activity supports a more cautious approach, persistent inflation continues to create risks for policymakers.
As a result, some economists believe additional tightening later in 2026 remains a realistic possibility.
What investors should watch next
Future inflation data, labour market trends, and consumer spending figures will be critical in determining the RBA’s next move. If inflation proves more stubborn than expected, the case for additional rate increases could strengthen.
For now, a June pause appears the most likely outcome. However, with inflation still well above target, the possibility of further rate hikes later this year remains firmly on the radar.
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