The RBA Monetary Policy Board has just announced a further 25bps increase in the official cash rate to 4.35%.
This was widely expected by economists and was the third successive meeting at which the Board has decided to increase interest rates. The move reflects concerns about higher inflation and higher inflationary expectations and fully reverses the three interest rate cuts implemented over 2025.
The vote was made by a surprisingly large majority (8-1), suggesting greater unanimity about inflation risks.
While there is little argument that a further increase in interest rates was warranted to moderate stubbornly above-target Australian inflation, we saw a credible argument that it was prudent for the RBA to await further clarity on how the Iran conflict might play out and its impact on the economy and inflation.
Still much higher oil prices and considerably weaker economic conditions could result if there is no quick resolution to the closure of the Strait of Hormuz. Either way, the combination of higher interest rates and higher energy prices will add to pressures not only on household budgets, but also on the costs of doing business.
This is likely to result in some increase in insolvencies in the months ahead unless a peace agreement can be reached relatively soon.
Chief Economist
Interest Rates
Chief Economist
Ivan joined CreditorWatch as Chief Economist in October 2024. He is a highly experienced chief economist and keynote speaker on the economy and financial markets.
Most recently, Ivan was Chief Economist, Corporate & Institutional Banking for National Australia Bank, but has also been Chief Economist for Qantas and Chief Economist (Australia) for ANZ and Deutsche Bank. Ivan has also consulted to SEEK, IATA and Virgin Australia.
Ivan holds a Bachelor of Economics with Honours from the University of Tasmania and commenced his career at the Reserve Bank of Australia.
14-Day Free Trial
Get started with CreditorWatch today
Take your credit management to the next level with a 14-day free trial.
