Everything points to interest rates being raised by 0.25% to 4.60% at next week’s RBA board meeting. However, if not this month then it will likely be in November.

Through various forums over recent weeks, the RBA Governor, the Deputy RBA Governor and Chief RBA Economist have been dropping heavy hints on a rate rise. 

The RBA has been fighting a losing battle for over 4 years to get inflation sustainably back between 2% – 3%. Higher interest rates hurt borrowers, but high inflation hurts everyone—think of your insurance premiums and shopping trolly—but it especially hurts those at the bottom end of the socioeconomic curve. 

RBA’s gently, gently approach is gone.

Up until now the RBA has applied a gently, gently approach in its fight to engineer inflation lower. It has tried to jawbone and delicately tinker with interest rates to get inflation to fall without wanting to take unemployment materially higher. 

The RBA Governor has effectively said that those days are over and that they will have to endure higher unemployment (maybe 5%) to achieve their inflation goals. I think the RBA is looking at the world and prospects for inflation and decided if they don’t get on top of inflation now, the fight could get really ugly in the future i.e. much higher interest rates.

This hike is going to hurt

This RBA rate hike is really going to hurt and could be the straw that breaks the camel’s back. 

The RBA in returning interest rates to the most recent high of 4.35% is one thing, but taking interest rates beyond this point is going to create consumer anxiety and crimp spending. Which of course is what the RBA is trying to achieve. 

What about the future? 

Is an economic-winter coming in 2027? It feels like a substantial slowdown is building. Think about the following;

• Falling property prices and the negative wealth effect—those under 50 would not have experienced a market like this before. 
• High fuel prices—who knows if they will possibly go higher. Already traffic feels lighter!
• Higher interest rates—how many hikes until the inflation high water mark is reached?
• Lower immigration for political reasons—governments of both persuasions have been using high levels of immigration to prop up nominal GDP growth. All political parties are cutting immigration levels to appease the electorate.  
• Cutbacks in government public spending—currently government spending is being blamed as an important contributor to inflation thus all levels of government are cutting back.
  
  On the positive side prospective AI data-centre construction should catch the economy from falling too far. That is of course if Trump doesn’t do something crazy—again.
  
  If economic growth slows next year as I expect, this should offer the RBA opportunities to cut interest rates probably in late 2027 or early 2028. However, I also expect the RBA to delay cuts as the economy slows as a way to finally get inflation properly back between 2% -3%.
  
  Should you consider fixing interest rates?
  
  At some point late next year or early 2028 you may want to consider fixing your interest rate borrowing costs for a longer period. Government debts in many parts of the world are at crazy levels and building resilience for a more volatile and less reliable world is going to lead to generally higher inflation longer term.
  
  Let’s see! 
  
  Please Note – the thoughts and ideas expressed in this Bordez Commentary are my own and not with assistance from artificial intelligence (AI)