Interest rates are back at 15-year highs. Here’s what CBA expects now

Unless you emerged from under a rock this morning, you’re likely aware of the latest Reserve Bank of Australia interest rate hike.

On Tuesday afternoon, many ASX shares came under pressure after the RBA announced its third consecutive rate hike in 2026.

Having boosted the official cash rate by 0.25% to the new 4.35%, Australia’s official interest rate is now back at its post pandemic 2024 highs. Indeed, you’d have to go back to November 2011 to find higher rates.

With inflation showing signs of picking back up even before the onset of the Middle East conflict sent global energy prices soaring, the RBA is looking to get ahead of the curve.

The board noted:

There are early signs that many firms experiencing cost pressures are looking to increase prices of their goods and services. Short-term measures of inflation expectations have also risen.

So, does this mean ASX investors should expect a fourth interest rate increase when the BA meets again on 16 June?

Probably not, according to the economists at Commonwealth Bank of Australia (ASX: CBA).

Here’s why.

Why CBA expects the RBA to now sit tight on interest rates

CBA head of Australian economics Belinda Allen said that following on Tuesday’s cash rate increase, the RBA now has some time to sit back and see what happens with inflation and the economy from here.

Allen noted that the RBA’s post meeting guidance reinforced this view.

According to Allen:

The RBA press conference reiterated that the board now has space to monitor the economic impact of the conflict in the Middle East, and this reaffirms our view that the RBA will now be on hold for the remainder of 2026.

However, Allen said that the added inflationary pressures from the Middle East conflict will likely see inflation remain above the RBA’s 2% to 3% target range for some time, so another interest rate increase in 2026 isn’t entirely off the table.

CBA also expects Australia’s economic growth will slow.

Allen said:

A further rate hike cannot be ruled out, depending on the data. Economic outcomes will dictate the path of policy. The key things to watch are federal and state budget outcomes, wage decisions, consumer spending and the June quarter inflation data.

With CBA forecasting that inflation will gradually ease as higher interest rates and cost‑of‑living pressures drag on household spending, and employment growth slows, the bank’s base case sees interest rates remaining at 4.35% in 2026 before possibly easing in 2027.

“From here we do see a period of ‘on hold’ from the RBA, depending on economic outcomes and global developments,” Allen concluded.

The post Interest rates are back at 15-year highs. Here’s what CBA expects now appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.