Australia to Hike Again?

Key Takeaways

• Most major central banks look set to hold or cut — the RBA looks set to keep going
• Markets are pricing a ~62% chance of a third 25bp hike at the 5 May meeting, which would lift the cash rate to 4.35%
• Energy shocks act like a de facto tax — draining household demand before the RBA even moves
• A stronger AUD is the likely trade-off if Australia keeps hiking while others pause
• Either outcome looks uncomfortable: keep hiking and domestic stress deepens, or hold and sticky inflation stays sticky

While most central banks look like they will hold, Australia is the outlier. Markets and most of the Big 4 now see the RBA hiking again as soon as May. But what are the consequences for households?

Energy shocks act like a tax

Energy shocks, like what is happening now, can act like a tax. The shock drains consumers and lowers demand, which is a bit like an interest rate hike on its own. Policymakers seem to be watching growth risk just as closely as inflation.

Australia is in a different position

Inflation hasn't settled here the way it has for comparable economies, and the RBA has signalled it isn't convinced policy is yet restrictive enough. The talk around the last decision was less about the decision itself and more about speculating when the next one would land.

The mortgage stress angle

Slowing inflation may be the right call on paper, but one can see how another hike would feed straight into mortgage stress. A 25 basis point move may sound small, but on top of previous hikes — and with electricity, food and insurance pressures already doing damage — it would be a blow to household cashflow.

The AUD trade-off

If the RBA keeps hiking while others pause, the AUD will strengthen. That helps headline inflation but squeezes exporters and erodes offshore asset values. The domestic picture gets harder either way. Either inflation keeps being fought — leading to fragility at home while the AUD looks strong — or the domestic situation is supported with a lack of hikes, which could make sticky inflation even stickier.

At Ainslie Bullion, we've been helping Australians own physical gold and silver since 1974. If you'd like to understand how precious metals fit alongside other assets during a period of policy divergence, our team is here to help.

This article is general information only and does not constitute financial advice. Past performance is not indicative of future results. Always conduct your own research or consult a licensed financial adviser before making investment decisions.