Rates Are Rising Again — And This Time, I Think They’ll Stay There Longer
- Robert Owen
- 3 days ago
- 3 min read
Late last year, I shared a view that Australia would see two interest rate increases in 2026, likely toward the back end of the year. Those increases have now occurred — earlier than I expected.
In hindsight, the timing matters less than the signal. What we are seeing now is not a one‑off adjustment, but the beginning of what I believe is another sustained rate‑hiking cycle, one that could extend over the next few years.
Why I Think Rates Are Heading Higher for Longer
At the core of this view is persistent inflation.
Despite expectations that inflation would continue easing, it remains elevated and stubborn. The drivers are not obscure or temporary. In my view, two forces matter most:
Ongoing government spending, which continues to inject demand into the economy.
Strong population growth through immigration, which places pressure on housing, services, and infrastructure.
Both of these are inflationary by nature. While there may be attempts to rein them in over time, the short‑term reality is that neither changes quickly.
For the Reserve Bank, persistent inflation leaves little room for patience. When inflation remains above target, the default response — historically and practically — is higher interest rates.
Australia Is Early — Not Different
It’s also worth noting that Australia has charted an unusual path over the past few years.
We are the first country to:
lower rates aggressively during COVID,
raise them rapidly,
allow some easing,
and now begin increasing again.
That sequence feels uncomfortable, but it doesn’t make Australia an outlier. More likely, it makes Australia early. Other economies are likely to follow a similar pattern as inflation proves harder to contain than initially expected.
Productivity Won’t Save Us Quickly
There’s been increasing discussion about productivity gains offsetting inflation pressures.
While productivity improvements are desirable, relying on them to meaningfully suppress inflation in the short term is unrealistic.
Productivity gains tend to materialise slowly. Monetary policy, by contrast, acts bluntly — and quickly. Faced with the choice, central banks lean on the tool that works in real time.
What This Means for Borrowers
If this view proves even partially correct, the outcome is straightforward:
Rates are likely to be higher for longer
Variable borrowers remain exposed to further increases
Certainty may be undervalued right now
Fixed rates currently carry a premium — in many cases, they’re higher than equivalent variable rates. That has made fixing unappealing for some borrowers. However, viewed through a longer lens, that premium may turn out to be the price of insulation, not a penalty.
For borrowers who value predictability, budgeting certainty, and protection against rising repayments, fixing for 2–3 years deserves serious consideration.
This isn’t about trying to pick the exact peak. It’s about recognising the direction of risk — and structuring loans accordingly.
As always, the right decision depends on structure, flexibility, and personal circumstances. But in an environment where inflation is proving persistent and policy is tightening again, certainty has a value that’s easy to overlook.
Call me and we devise a strategy unique for you and your family..
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The information provided is general in nature and does not constitute personal financial product advice. It does not take into account your objectives, financial situation, or needs. Before acting on any information, you should consider its appropriateness in light of your own circumstances.
