Economic Commentary

16 December 2025

Expecting 50bps of hikes in H1 2026.

Key points

• We now expect the RBA to increase the policy rate by 25bp in February. This is likely to be followed by another 25bp increase in May, taking the cash rate to 4.1%.
• The economy is already at trend growth, and private final demand is running stronger than the RBA anticipated.
• The NAB business survey shows that capacity utilisation is elevated and that there is breadth to this dynamic at an industry level. The survey also suggests that business report less pressure on margins over recent months.
• And the RBA has expressed uncertainty about the stance of policy, no longer comfortable that a policy rate of 3.6% is “…a little on the restrictive side.”
• Inflation accelerated in Q3, and we forecast a 0.9% qoq for trimmed-mean in Q4, suggesting inflationary pressures have persisted.
• Taken in conjunction with stronger growth outcomes and evidence of capacity constraints starting to bind, we believe an inflation outcome of this magnitude will force the RBA to execute a modest recalibration of monetary policy in 1H26.

For further details please see the full report. (PDF, 246KB)