The last decision shocked most observers by going down to the wire with a five-to-four vote in favour of a hike.<\/p>\n
While she’s never given any indication of her vote, RBA governor Michele Bullock has been vocal about the need to control inflation.<\/p>\n
![\"A](\"https:\/\/www.newsbeep.com\/nz\/wp-content\/uploads\/2026\/05\/c3c4a2281d4f858562c4b277f08ea884.jpeg\")
<\/p>\n
Michele Bullock has already announced two cash-rate increases this calendar year. (AAP: Dan Himbrechts\/file)<\/p>\n
So, it’s safe to assume the governor had the deciding vote on an evenly split board.<\/p>\n
It’s a neat illustration of the competing fears of this crisis unfolding across the globe.<\/p>\n
Half the board is clearly worried about inflation getting out of control, while the other half is more concerned about the dangers of grinding back demand and tipping the economy into recession.<\/p>\n
And nothing in the past few weeks is likely to have changed their positions. If anything, those arguing to stay put would have been given more resolve by recent events.<\/p>\n
Last week’s inflation numbers<\/a> \u2014 while better than expected \u2014 remain a problem, with the headline number topping out at 4.6 per cent, blown out by the global fuel crisis. But, stripping out fuel and other big swings, underlying inflation was steady at 3.3 per cent.<\/p>\n The March rate hike, meanwhile, has bludgeoned consumer confidence to an all-time low, with business confidence in close pursuit, clearly indicating the previous two hikes are starting to bite.<\/p>\n And then there are property prices. In the country’s two biggest markets, Sydney and Melbourne, real estate values are edging lower<\/a>, removing another vital need for an immediate hike.<\/p>\n Same, same but different<\/p>\n Most of us succumb to the temptation to mould our responses to problems by looking at similar past occasions.<\/p>\n For the past two months, there have been endless references to the oil price shock of the 1970s, and more recently to the Russian invasion of Ukraine.<\/p>\n Both examples provide useful clues on how to react now. Both were inflationary episodes sparked by energy shortages.<\/p>\n But there are differences that need to be considered. Unlike the post-pandemic outbreak, we’re beginning from a much higher interest rate base.<\/p>\n RBA assistant governor Chris Kent indicated in late March that interest rates were not quite at “neutral” level. But, even if he’s right, we’re only slightly below it, and it may not take too much more to get there.<\/p>\n Government debt costs set to soar<\/a><\/p>\n The 10-year Treasury bond, which the Commonwealth issues to raise money, pushes past 5 per cent, raising the cost of paying off debt and suggesting inflation is not under control.<\/p>\n There’s also the dramatic turnaround in stimulus compared with the past few years. The federal budget next month is likely to be far less generous than previous efforts, thereby removing some support.<\/p>\n On the fiscal side, tax cuts are off the agenda and spending is likely to be reduced.<\/p>\n On the monetary side, the two rate hikes since February are only now beginning to bite.<\/p>\n Overriding all of this is the major complicating factor of America and Israel’s attack on Iran, and the confusion about how and when this could all be brought to an end.<\/p>\n As much as the resulting fuel crisis is inflationary, pushing up the cost of almost everything, it is also contractionary.<\/p>\n It acts as a tax on consumers, seriously depleting their ability to spend.<\/p>\n Many Australian households are perplexed by what is about to happen. Why, they ask, are they being punished by higher interest rates, for the crime of being slugged by higher fuel prices?<\/p>\n It only takes a minor nudge on interest rate hikes to tip the balance and send the economy into recession.<\/p>\n Many economists are tipping the RBA to raise the cash rate by 25 basis points. (ABC News: Matt Roberts)<\/p>\n An unlikely saviour?<\/p>\n The Australian dollar has been on a tear since November.<\/p>\n From about 63 US cents, it yesterday marched across the 72c barrier, a 15 per cent lift in the space of six months.<\/p>\n Few economists focus on the dollar, but a strengthening currency can have a serious dampening impact on inflation.<\/p>\n Outlook Economics director Peter Downes says Australia is far more sensitive now to exchange rate movements than during the 1970s oil crisis.<\/p>\n Back then, we imported about 12 per cent of our consumer goods. These days, it is closer to 30 per cent.<\/p>\n “As a rough rule of thumb, a 10 per cent appreciation in the exchange rate will reduce inflation by around 2 percentage points over 12 to 18 months,” he says.<\/p>\n The Australian dollar is currently performing well against many major currencies. (AAP: Joel Carrett)<\/p>\n Our currency has soared<\/a> due to several factors.<\/p>\n For a start, the RBA is an outlier, raising interest rates and thereby attracting global cash. The US dollar is weak, a trend likely to continue, and commodity prices have remained buoyant.<\/p>\n The Aussie dollar has strengthened against most major currencies, including the euro, sterling and the yen. It is even marginally higher against the highly regulated yuan.<\/p>\n That means the deflationary impact will be widespread.<\/p>\n US at war with Iran, US Fed at war with itself<\/p>\n War and oil<\/a> may be the dominant themes in financial markets.<\/p>\n But another conflict, one that has been brewing for years and will likely impact global interest rates, shows little sign of abating.<\/p>\n![\"The](\"https:\/\/www.newsbeep.com\/nz\/wp-content\/uploads\/2026\/05\/c9213a76c5f4c8f5e4774cfb884b6528.jpeg\")
<\/p>\n![\"Australian](\"https:\/\/www.newsbeep.com\/nz\/wp-content\/uploads\/2026\/05\/7e09bfefee9a08d20852eac3a902cfbd.jpeg\")
<\/p>\n
![\"Michelle](\"https:\/\/www.newsbeep.com\/nz\/wp-content\/uploads\/2026\/05\/bcc4c97f6adba683c933668c29fc8bdb.jpeg\")
<\/p>\n