I expect that the RBA will raise interest rates by 0.25% to 4.35% at the RBA board meeting on 5 May 2026.
Strap yourselves in for a wild roller-coaster interest-rate and economic ride in the next 18 months.
The Trump trainwreck
I think we all knew a trainwreck was coming during Trump’s second term in power. It was just a question of how. We now know Iran, oil and Hormuz, leading to inflation, was the how.
To be clear no one really knows what’s in store for us—not even the RBA, but one thing we can be sure of is much higher inflation.
Even though this inflation shock is a supply-side driven problem (higher oil, gas, urea prices), the RBA is going to have to tackle higher inflation from a demand-side perspective by raising interest rates. Unfortunately, this is likely to result in higher unemployment.
RBA navigating the Strait of Hormuz
The RBA is going to have to deftly navigate its own Strait of Hormuz via its interest rate adjustments.
It will have to find balance and timing between how high the RBA takes interest rates to bring inflation under control without allowing the economy to stall and then fully tank.
It will probably be too formidable to achieve without some sort of a serious slow down.
RBA’s first priority
For now the RBA’s first priority will be to get inflation under control.
Raising interest rates is the only tool it has available to it, however high oil prices are going to have serious inflationary implications in the back end of 2026, but they will also crimp demand. This can be evidenced by the recent collapse in consumer and business confidence.
And it’s quite possible that core inflation gets above 5%.
Anecdotally I’ve heard plumbing supplies have already gone up 30% overnight and the rise in especially diesel, is killing industry with farmers having to decide whether to plant or not. I wonder what a box of Weet-bix will cost in 6 month’s time?
RBA’s second priority
The second priority for the RBA will be to figure out as and when they have rounded the corner of having inflation tamed and heading back down.
This will allow them to ease interest rates again. At this point they will need to gently ease the throttle back by lowering interest rates and landing inflation and the economy without too much of a crash landing. If they ease interest rates too little and too slowly at this point the economy could stall.
Is Globalisation dead?
How high interest rates go is not known at this stage. However the world has changed in the last year and especially as a consequence of the goings on of the last few months.
The world and especially Australia has learnt that globalisation cannot be trusted. This will lead to more safety-net onshoring of product manufacturing and supply that will come at a cost as manufacturing onshore is often more expensive that offshore.
Eventually this will feed into a generally higher inflation and interest rate profile. There may be opportunities to fix interest rates in time to come once this next slowdown has played out but that is a discussion for another day.
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)
Boris Sfiligoi
Director and Lending Consultant
Strap yourselves in for a roller coaster interest-rate ride
I expect that the RBA will raise interest rates by 0.25% to 4.35% at the RBA board meeting on 5 May 2026.
Strap yourselves in for a wild roller-coaster interest-rate and economic ride in the next 18 months.
The Trump trainwreck
I think we all knew a trainwreck was coming during Trump’s second term in power. It was just a question of how. We now know Iran, oil and Hormuz, leading to inflation, was the how.
To be clear no one really knows what’s in store for us—not even the RBA, but one thing we can be sure of is much higher inflation.
Even though this inflation shock is a supply-side driven problem (higher oil, gas, urea prices), the RBA is going to have to tackle higher inflation from a demand-side perspective by raising interest rates. Unfortunately, this is likely to result in higher unemployment.
RBA navigating the Strait of Hormuz
The RBA is going to have to deftly navigate its own Strait of Hormuz via its interest rate adjustments.
It will have to find balance and timing between how high the RBA takes interest rates to bring inflation under control without allowing the economy to stall and then fully tank.
It will probably be too formidable to achieve without some sort of a serious slow down.
RBA’s first priority
For now the RBA’s first priority will be to get inflation under control.
Raising interest rates is the only tool it has available to it, however high oil prices are going to have serious inflationary implications in the back end of 2026, but they will also crimp demand. This can be evidenced by the recent collapse in consumer and business confidence.
And it’s quite possible that core inflation gets above 5%.
Anecdotally I’ve heard plumbing supplies have already gone up 30% overnight and the rise in especially diesel, is killing industry with farmers having to decide whether to plant or not. I wonder what a box of Weet-bix will cost in 6 month’s time?
RBA’s second priority
The second priority for the RBA will be to figure out as and when they have rounded the corner of having inflation tamed and heading back down.
This will allow them to ease interest rates again. At this point they will need to gently ease the throttle back by lowering interest rates and landing inflation and the economy without too much of a crash landing. If they ease interest rates too little and too slowly at this point the economy could stall.
Is Globalisation dead?
How high interest rates go is not known at this stage. However the world has changed in the last year and especially as a consequence of the goings on of the last few months.
The world and especially Australia has learnt that globalisation cannot be trusted. This will lead to more safety-net onshoring of product manufacturing and supply that will come at a cost as manufacturing onshore is often more expensive that offshore.
Eventually this will feed into a generally higher inflation and interest rate profile. There may be opportunities to fix interest rates in time to come once this next slowdown has played out but that is a discussion for another day.
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)
Boris Sfiligoi
Director and Lending Consultant
by Boris Sfiligoi
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