Interest rates to rise

This Tuesday’s RBA interest-rate-setting meeting is going to be a very tricky one to call. 

My call is that the RBA will raise rates by 0.25% to 4.05%. 

The RBA likely to not wait

Originally, I was thinking they would wait for more data and then possibly raise in May 2026 but why wait? Let’s face it, it’s beyond clear that inflation is going higher because of the current jump in oil prices. 

Additionally, the RBA has already ripped the band aid off and exposed the scab of higher interest rates on borrowers, another 0.25% rise now will still hurt but it borrowers will not be as surprised.

The RBA will also be able to fly under the cover of higher oil prices which will provide it with a good excuse for raising interest rates this time. 

Inflation is hard to control

Inflation, as the RBA knows, is so hard to get back under control if it escapes. Early and painful interventions now via successive interest rate rises will hopefully prevent greater and larger interest rate rises down the track. It’s easier to drop rates later if they have over compensated.

To an extent the RBA may also choose to look through the current Middle East happenings and consequent higher oil prices. However, with unemployment still low and GDP’s recent improvement, I can’t see them overlooking the opportunity to take out more inflation insurance.

Let’s see!