Australia’s central bank is at a monetary policy crossroads, with recent comments from Reserve Bank of Australia Governor Michele Bullock and shifting market expectations pointing to a genuine possibility of further interest rate increases – even as geopolitical tensions overseas inject fresh uncertainty into the inflation outlook.
According to Ms Bullock’s latest public remarks at the AFR Business Summit, every upcoming RBA board meeting, including the next one in mid‑March, is “live” for a potential rate hike.
That signals a departure from previous guidance that may have suggested a more predictable path for rate changes, instead underscoring the Bank’s readiness to act if inflation remains stubborn or inflation expectations become unanchored.
At the centre of the debate is the ongoing conflict in the Middle East, which has disrupted global energy markets.
Ms Bullock and other central bank officials have highlighted that spikes in oil prices and supply shocks could feed directly into consumer prices, making inflation harder to bring back to the RBA’s 2–3% target band.
While it’s still early to fully assess the economic consequences, she has stressed the RBA will closely monitor these developments and respond if necessary.
Markets re‑price rate expectations
Financial markets have reacted to this hawkish shift, with analysts and economists now pricing in a significantly higher likelihood of a rate rise at the March board meeting.
As reported by realestate.com.au, economists such as Ivan Colhoun of CreditorWatch have revised forecasts, saying that a 25‑basis‑point increase to around 4.10% could now be the base case.
That’s a stark shift in sentiment compared with just weeks ago, when many in the market were betting on a May hike, after the release of the March quarter inflation data.
Ms Bullock’s caution reflects the complex trade‑offs the Bank faces. Inflation in Australia remains above target, driven in part by higher energy and housing costs, while the labour market continues to show strength with unemployment remaining low.
She has previously noted that it’s too early to definitively say how the Middle East conflict will affect the Australian economy, acknowledging scenarios where it could either add to inflationary pressures or dampen global growth, slowing inflation.
RBA modelling highlighted that more aggressive rate hikes earlier could have brought inflation back to target sooner, but at the cost of significantly higher unemployment – illustrating the Bank’s balancing act between price stability and broader economic health.
With global energy uncertainty and persistent inflation risks front of mind for policymakers, real estate agents should be prepared for higher‑for‑longer interest rate expectations, at least through the first half of 2026.
