RBA Today, February 03: Markets Put 72% Odds on Hike to 3.85%

RBA interest rates take centre stage today, with markets assigning a 72% chance of a hike to 3.85%. Several economists back a precautionary move as underlying Australia inflation edges higher. If the Reserve Bank lifts the RBA cash rate, most variable borrowers may not see immediate mortgage repayments rise, softening the near-term hit to household cashflow. We explain what a move could signal for inflation, housing, and portfolios, and how investors in Australia can position if policy tightens again.

What markets are pricing today

Markets price a 72% chance that the cash rate rises to 3.85% today, reflecting concern that underlying prices remain sticky. A hold would suggest the Board needs more data, while a hike would keep pressure on demand. For investors, this setup puts RBA interest rates back at the core of equity and bond pricing, with short-end yields most sensitive to the decision.

Several economists argue for a precautionary rise to lean against persistent core inflation and keep expectations anchored. Recent price indicators and services costs point to slow disinflation, even as growth cools. That supports a risk-management approach. For a local read on odds and reasoning, see ABC News’ coverage of today’s decision source.

Inflation and the RBA’s reaction function

Headline CPI can swing on fuel and utilities, but the RBA watches trimmed mean and services categories to judge momentum. With underlying pressures edging higher, keeping RBA interest rates restrictive aims to slow demand and wage-price persistence. The Board will weigh inflation’s breadth against slowing consumption, housing activity, and business conditions before setting the RBA cash rate path.

A 25 basis point move to 3.85% would signal the Board still sees upside inflation risk and wants optionality. It would also highlight data dependence for coming meetings, with wages, retail volumes, and unit labour costs in focus. If disinflation reasserts, holding RBA interest rates steady later could remain plausible, but a stickier path leaves follow-up action on the table.

Mortgage and household cashflow impact

Most mortgaged homeowners may not see scheduled repayments increase right away if a hike lands today, easing immediate cashflow pressure. Many borrowers already pay above minimums, and some lenders update minimums with a lag. The Guardian outlines why near-term mortgage repayments might be unchanged despite higher policy rates source.

A sizeable share of borrowers remain on fixed loans or hold offset balances, which can cushion the first-order impact. Still, RBA interest rates at restrictive levels keep borrowing costs elevated and housing turnover subdued. Watch lenders’ repricing cycles over coming weeks, especially for interest-only and investment loans, where minimums can adjust sooner and reduce household spending power.

Portfolio implications for Australian investors

A higher policy rate supports disinflation but can pressure growth-sensitive areas. We see headwinds for rate-sensitive sectors such as REITs, consumer discretionary, and small caps. Banks may benefit from solid deposit franchises, yet slower credit demand and rising arrears are risks. Stock pickers should stress-test earnings for higher funding costs while keeping an eye on RBA interest rates guidance.

A hike typically supports the Australian dollar against peers, while front-end bond yields rise. Duration remains sensitive to inflation surprises and policy path shifts. Investors may consider shorter-duration exposure or bond ladders to manage volatility. If RBA interest rates stay restrictive for longer, carry improves, but mark-to-market swings can stay elevated around key data and meeting dates.

Final Thoughts

Today’s meeting matters because policy credibility and inflation momentum are in a delicate balance. A lift to 3.85% would tell us the Board is prioritising underlying price pressures and wants flexibility if Australia inflation lingers. For households, many will not see immediate mortgage repayments change, but higher rates still weigh on spending over time. For investors, reassess rate-sensitive holdings, stress-test cashflows, and check duration exposure in fixed income. We will watch wages, retail volumes, and services prices to judge if the next move is a pause or a follow-up hike. Keep allocations nimble while tracking RBA interest rates and guidance closely.

FAQs

If the Board lifts the policy rate, the RBA cash rate would move to 3.85%. That keeps financial conditions restrictive and signals the Bank wants to contain underlying price pressures. Markets would likely push short-end yields higher, firm the Australian dollar, and reassess the timing of any future pause if Australia inflation proves sticky.

Not necessarily. Many borrowers pay above minimums or face lender recalculations that occur with a lag, so scheduled repayments may not change right away. Over coming weeks, lenders can update minimums, which lifts repayments. Check your lender’s policy and your offset balance to see how quickly a change in RBA interest rates flows through.

Markets see underlying inflation edging higher and want the Bank to keep expectations anchored. A precautionary move reduces the risk of a later, larger response. Traders price this view into cash rate futures. If data soften convincingly, odds can shift quickly, but for now, RBA interest rates are expected to stay restrictive to cool demand.

Higher policy rates can pressure rate-sensitive sectors like REITs and consumer discretionary. Banks face a mixed backdrop, with slower credit growth but resilient deposits. In bonds, short maturities tend to sell off first, lifting yields. Portfolio adjustments often focus on shortening duration and stress-testing earnings for higher funding costs while monitoring RBA interest rates guidance.

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Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.