RBA May hike locked in

Westpac says the RBA is set to lift the cash rate by 25bp to 4.35% at its May meeting, citing stronger-than-expected pass-through from higher fuel prices into non-fuel goods and services and elevated services/non-tradables inflation. March’s trimmed-mean inflation (0.8% qtr) and spikes in consumer/business inflation expectations make further tightening likely; Westpac’s base case adds two more 25bp hikes in June and August. The note highlights the RBA’s relatively hawkish stance versus other central banks and signals a higher-for-longer policy path, which should be supportive for AUDUSD (i.e., AUD strength) and could weigh on risk-sensitive assets if real incomes are squeezed. Key near-term market impacts: higher Australian rates priced in, potential AUD appreciation, and elevated volatility around rate announcements and inflation pass-through data.