Edward Hayden-Briffett
Research Analyst, The Officials
RBA Raises Cash Rate, Rupee Hits Record Low, Euro Manufacturing PMIs
RBA hikes, hawkish on inflation; rupee hits record low on oil surge and outflows; Europe PMIs strong; UK sales boosted by policy effects
The RBA raised the cash rate 25bp to 4.35%, as expected, with an 8-1 majority.
The statement was hawkish: higher Middle East-driven fuel prices are adding to inflation and may create broader second-round effects across goods and services. The Board also flagged already-high early-2026 inflation and ongoing capacity pressures. Inflation is now expected to remain above target for some time, with risks still tilted upward, including inflation expectations. The dissenting member preferred holding at 4.10%. Higher interest rates constrain aggregate demand, and therefore oil demand over the medium run.
The rupee hit a record low of 95.4375/USD, breaching April’s 95.3337. As an oil importer, India’s external balance is deteriorating after the surge in oil prices, while foreign equity outflows have reached $21bn this year, already above 2025’s full-year total. UBS cut its fiscal 2027-end rupee forecast to 96/USD from 94. The RBI may revisit its 2013 toolkit: raising expatriate dollar deposits, curbing gold imports, or opening FX swap windows for oil firms, which need $250m-$300m daily.
European Manufacturing PMIs were unexpectedly strong, with Germany, Spain and Italy all outperforming expectations. Spain registrations as jobless decreased by nearly 63k in April, much better than expected 18.6k with record employment levels. UK vehicle sales look extremely strong in April (+22.4% y/y) but this is due to last year’s tax and policy incentives.
Data today: ISM Services PMI, JOLTs job openings
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