RBA interest rates: Reserve delivers blow to homeowners after three rounds of relief

AMP chief economist Shane Oliver was one of the few economists calling for a hold, pointing out inflation was trending down over the past 12 months and the RBA could be patient.

“I lean into the view that the (inflation jump) is more of a blip than a chronic problem,” he said.

“If you look at the trimmed mean inflation, it has actually stepped down over the last six months … which suggests to me that is more a blip.”

InvestSmart chief executive Ron Hodge agrees, adding four reasons why he believes interest rates should remain on hold on Tuesday.

“Inflation remains elevated, but the forces driving it over the past year are starting to unwind,” Mr Hodge said.

“The RBA is far more likely to pause and wait for those changes to flow through the economy than risk overtightening.”

• Falling electricity prices: Wholesale electricity prices in the National Electricity Market dropped 44 per cent in the December 2025 quarter compared with the previous year, driven by record renewable energy generation.
• Stronger Australian dollar: The currency’s rise above US70 cents is reducing the cost of imported consumer goods, creating a disinflationary effect.
• Labour market uncertainty: Despite unemployment falling to 4.1 per cent, the emerging AI revolution threatens significant job disruption.
• Policy stability: After only recently loosening monetary policy, tightening again so quickly risks “policy whiplash” and could undermine the RBA’s credibility.

This chart says it all.

It’s been quite the rollercoaster ride for homeowners since the COVID-19 years. First came record low rates of 0.1 per cent to stimulate the economy and keep the nation afloat.

Then can rapidly rising inflation and the resulting need to hike rates.

Only last year were the screws loosened and those with a home loan could breathe a sigh of relief.

And now we’re back to the propsect of more mortgage pain.

Pass the neck brace!

How has it come to this?

Less than six months ago - when the Reserve Bank in August shaved another 25 basis points off the official cash - all talk was about how many more cuts we could expect in 2026.

Big Four accounting firm Deloitte at the time believed the RBA was inching closer to a “neutral” monetary setting and pencilled in a fourth cut in December “on the back of anticipated benign inflation data”.

Oh how quickly things can change.

An uptick in inflation forced the RBA to hold rates at its November meeting, and again in December. At that time, both the headline and trimmed (read headline minus items that tend to jump around in prices from month to month) consumer price readings had crept back outside the target band of between 2 and 3 per cent.

Talk swiftly swung back to expectations of rate hikes. To put it more bluntly on behalf of every homeowner just starting to enjoy the benefits of rate relief, it marked a return to post-COVID squeaky bum time.

With the resurrection of the inflation dragon, governor Michele Bullock and Co will be in no mood to fan the flames. That means just one thing - homeowners will again be sacrificed in the name of economic stability.

Ms Bullock has never minced her words. Hike rates are a necessary evil - a blunt tool to rein in runaway prices. And, unfortunately, it’s the only one its got.

It’s not an overstatement to say today’s decision is the most important in almost four years. It was in May 2022 that the board embarked on a once-in-a-generation rate rise cycle that drove many households to breaking point.

The tourniquet was only released a year ago when rates eased from 4.35 per cent to 4.10 per cent.

Some well-respected outliers maintain the RBA board will hold today and buy itself six weeks before the March meeting to see which way the wind blows.

Either way - a hold or a hike - what’s certain is that the rate relief honeymoon is officially over. Irreconcilable difference.

Buckle up and get ready to defend those mortgage buffers. Just in case, you might also want to pull out that pair of brown pants.