Where Next for RBA Rates?

The Reserve Bank of Australia (RBA) raised rates again in September, taking the cash rate to its highest level since late 2011. With inflation still above target and markets expecting more tightening, many investors are asking the same question: what could drive further hikes, and what might eventually bring them to an end?

Here is a clear look at the key pressures shaping the RBA’s thinking, and what the current environment could mean for your portfolio.

Why more hikes are on the table

Inflation remains the main driver. Strong consumer demand, higher oil prices, fiscal spending and weak productivity have pushed inflation back above the RBA’s 2 to 3% target. The RBA has kept a clear tightening bias and has warned that rates may need to rise further if inflation and demand do not ease.

Pressure is coming from several directions at once:

• Strong domestic spending
• Rising rental costs
• Elevated oil prices
• AI-related demand
• Australia’s weak productivity

What the market is expecting

Rates markets are pricing in at least two more 0.25% hikes over the next 12 months, and Australian government bond yields have moved higher across the curve. It is worth remembering, though, that market pricing is not a guarantee. Expectations can and do change.

What could change the RBA’s course

A rate cut would most likely need a catalyst. Any of the following could shift the RBA towards cutting:

• A significant housing downturn
• Weakness in private credit
• Unemployment rising above 5%
• A reversal in AI-related demand

Without one of these, an extended pause is the more likely outcome once inflation begins to settle.

Monthly spotlight: staying the course on duration

Higher bond yields can feel uncomfortable, but they may also create opportunity. Ascalon expects another hike this year, yet believes current market pricing could prove too aggressive. If government bond yields are nearing a peak, Australian government bonds may offer attractive yield and downside protection within a diversified portfolio.

The takeaway

Interest rate cycles are difficult to predict, and headlines can pull investors in both directions. A well-diversified portfolio, built around your goals and reviewed regularly, is the best way to stay on course whatever the RBA does next.

Not sure how rising rates affect your investments?

The experts at Oreana Private Wealth can review your portfolio, explain where you stand and help you make confident decisions in a changing rate environment. Get in touch with our team today and make sure your strategy is working as hard as you are.