INSIGHTS: One Hike Too Many

 

 

Key Takeaways

• With the Reserve Bank’s rate at 4.85%, that is five increases in 2026 alone.

• While most of its peers are content to sit on their hands, Australia is tightening.

• Productivity is in reverse even as government outlays approach a 40-year peak.

• State budgets and bank balance sheets are feeling the pinch of declining home values.

• The greater danger going forward may be an extended hold instead of further hikes.

 

On Ainslie Insights, Alex Hutchinson put forward the case to host Chris Tipper that the RBA’s fifth hike of 2026 has come down on a much more fragile economy than was the case with the Melbourne Cup Day move in 2023. They ran through the housing downturn, fiscal policy and the second-round effects now being felt in the books of the states and the banks.

 

This November is echoing 2023, only at starker levels. When the Monetary Policy Board voted 6 to 3 to put the cash rate up 25 basis points to 4.85% on 3 November, it was the highest figure since 2008 (RBA, 3 November 2026). “It is like 2023 all over again, just a lot higher,” said Hutchinson. He sees the parallel as one where there is less room for the economy to take it.

 

The labour market tells the story. In October 2023 unemployment was 3.7 per cent when the RBA hiked to 4.35 per cent; by September 2026 it had moved to 4.7 per cent. To Hutchinson, that full percentage point of slack means the government has been talked into a corner. Any headcount reductions will be reflected straight in the unemployment figures.

 

Hutchinson makes his central fiscal claim on the basis that while the 2023 diagnosis was right, the reaction was not. Federal payments have hit 26.9 per cent of GDP in 2025-26, a share S&P Global has put a long-run risk flag on (AAP, 7 October 2026). It is the make-up of that spending he takes issue with. Where the Commonwealth pulled $7 billion from 50 infrastructure projects in late 2023 after a cost review, general government staffing has swelled from some 171,938 in 2021-22 to an estimated 217,256 this year.

 

The Commonwealth would have you believe nearly a third of that growth is simply work brought back in-house from consultants, but on Hutchinson’s view, trimming capital works to expand headcount is counter to what the productivity numbers demand, a position the states are only reinforcing. And the data bears him out: with hours worked up 2.3 per cent and output 2.1 per cent, labour productivity is down 0.2 per cent to June 2026, with the non-market sector worse off than in March 2007.

 

Then there is the matter of red tape. Hutchinson offered a personal example of having to reformat and recalculate the very same figures for a Victorian regulator that were already with the ABS. “My business partner calls me SurveyMonkey because my job is filling in surveys for the government,” he said. But the joke is about duplicated reporting eating up time on both sides. He sees an administrative workforce that has added process rather than cut it.

 

One thing remains hard to put a finger on: why the RBA is tightening when others are not. Australia is something of an outlier. On 28 October the Bank of Canada made its first rate rise since July 2023 to 2.50 per cent, and the Fed held at 3.75 to 4.00 per cent (NorthLedger Money, 2 November 2026). On 28 October 2026 the Reserve Bank of New Zealand held its official cash rate steady at 2.75% (RBNZ, October 2026 (https://www.rbnz.govt.nz/)).

 

Hutchinson has no time for putting the blame on any one person for the divergence. “They seem to always raise too hard, always cut too fast,” he said, and put it down to a dependence on data that is months old by the time the board sees it.

 

Then there is the matter of how much scenario work informs these decisions. The RBA governor was asked in September 2026 what his models showed if government spending were to be cut by 2%. “We’ve not run that scenario” was the answer given to the House Standing Committee on Economics, with the chief economist noting you cannot run an infinite number of them (news.com.au, 19 September 2026 (https://www.news24.com.au/business/finance/weve-not-run-that-scenario-reserve-bank-grilled-over-shock-inflation-modelling-admission/news-story/7aa82e18d3a02a17d3f1a1222fcefc2b)).

 

As for energy, Hutchinson’s take is blunt: you are not going to help anyone by punishing one part of the market, because rate rises do not get to the root of it. Headline inflation stands at 4.3%, but transport costs have jumped 8.7% over the year to September 2026 due to automotive fuel, and electricity is up 12.8% (ABS, 28 October 2026 (https://www.abs.gov.au/media-centre/media-releases/cpi-rose-43-year-september-2026)).

 

The second-round effects are being felt in housing, which is where Hutchinson believes the modelling falls short. National dwelling values were down 1.2% in October 2026, some $63,400 or 6.7% off the median from their March high of $884,855 (ABC News, 2 November 2026 (https://www.abc.net.au/news/2026-11-02/house-prices-fall-in-october-biggest-downturn-40-years-cotality/107325214)). In his view the published indices do not tell the whole story; declines in certain segments can be far more material than the national series would have you believe. He made as much clear on air, citing clearance rates and individual sales rather than the usual property data, though the private sales he put forward are not verifiable and are left out here.

 

The numbers that are available are sobering enough. For the three months to October 2026 home sales were 23% under a year ago and 18% below the five-year average, turning a fall in price into a revenue issue for the states (ABC News, 2 November 2026 (https://www.abc.net.au/news/2026-11-02/house-prices-fall-in-october-biggest-downturn-40-years-cotality/107325214)). Victoria’s fiscal update for October had to trim its operating surplus forecast from about $1 billion to $300 million a year, writing down expected tax revenue by an average of $1.3 billion annually over four years on account of lower land tax and transfer duty (ABC News, 30 October 2026 (https://www.abc.net.au/news/2026-10-30/vic-budget-update-property-market-fall-debt/107327810)).

 

Hutchinson would have you look at bank balance sheets as the next consequence. The concentration is no exaggeration: residential mortgages account for over 60% of the loan books of Australian authorised deposit-taking institutions, a figure high by any standard (APRA, April 2026 (https://www.apra.gov.au/system/files/2026-06/Submission%20-%20Senate%20Select%20Committee%20on%20Productivity%20-%20Housing%20lending%20-%20Redacted.pdf)). Add to that the uncertainty of the May 2026 budget, which did away with negative gearing for new investments from 1 July 2027 and replaced the capital gains tax discount with cost-base indexation (Guardian Australia, 12 May 2026 (https://www.theguardian.com/australia-news/2026/may/12/australia-federal-budget-2026-tax-reform-capital-gains-cgt-changes-negative-gearing-housing-first-time-home-buyers-investors-explained)). What that means for any particular holding is best left to a registered tax agent.

 

But the RBA puts it differently: the case they make is that the hike was never about oil. According to Governor Michele Bullock, the board’s tightening was never about global oil prices, which are beyond the reach of monetary policy. Instead it was aimed at domestic capacity pressures that were in evidence well before fuel costs put in their rise. The board now believes those pressures have been a bigger factor in inflation than was first thought (SBS News, 3 November 2026).

 

Economists in the market have taken the November statement to be the close of the tightening bias and not the opening of some protracted campaign. UBS has been quite dovish in its reading of the bank’s decision to forgo any mention of further cash rate increases, while Capital Economics points to the board’s own admission that conditions have become restrictive (ABC News, 3 November 2026).

 

Then there is Cotality’s take on a tight labour market and a dearth of new housing as things that will limit any sharp correction (Cotality Home Value Index, October 2026), a view at odds with the more pronounced decline Hutchinson is putting on the table. His is a forecast to hold, with an asterisk. “I’m hopeful the hold this time won’t be more than nine months for everyone out there,” said Hutchinson, in contrast to the 15 months the RBA held at 4.35% prior to its 4.10% cut on 18 February 2025 (RBA, 18 February 2025).

 

What does this present to investors?

 

The reality is an Australian investor must plan for a long plateau at an 18-year-high cash rate, with some of the inflationary headwinds being ones monetary policy can do nothing about. There is no timing signal in all of this discussion, and that is precisely the case for having one’s mechanics in order ahead of a move rather than in the moment.

 

For our clients at Ainslie it comes down to the details: where current levels are on the Bullion charts (https://ainsliebullion.com.au/Charts), how metal is insured and stored (https://ainsliebullion.com.au/Storage) and the speed of conversion back to cash via the Ainslie buyback (https://ainsliebullion.com.au/Sell). One can also use Ainslie Saver (https://ainsliebullion.com.au/Ainslie-Saver) to accumulate in a rate cycle that defies timing, or look to Ainslie Crypto and Gold Silver Standard for the tokenised side of hard assets. Further coverage on rates and housing from us can be found in the news and resources archive (https://ainsliebullion.com.au/News-Resources).

 

About Alex Hutchinson

Alex Hutchinson of Siltech PMR joined host Chris Tipper for a conversation on Ainslie Insights. This piece is drawn from that episode.

 

Disclaimer: This article is for general information purposes and should not be read as financial advice. Future results are not guaranteed by past performance. It is best to do your own due diligence or speak with a licensed adviser before making any investment decisions.