A 0.25% rate rise feels familiar. It brings back memories of late 2022. Wars are escalating to our north. Inflation fears are back. Talk of more rate hikes is loud again.
That panic is common in these moments. The real question is whether this is another cycle, or something different.
When you look closer, today is not the same as 2022.
After COVID, interest rates were pushed to record lows. From 2021 to 2023, the RBA cash rate sat at 0.10%, supported by a fiscal stimulus of around $250 billion, or 15% of GDP. The RBA had signalled rates would stay on hold until 2024. At the same time, the global economy was recovering and inflation started rising faster than expected. The escalation of the Russian invasion of Ukraine added further pressure.
The response was swift and forceful. The cash rate lifted from 0.10% in April 2022 to 4.10% by June 2023, followed by another 0.25% rise in November to 4.35%. Even then, Australia did not reach the rate levels seen in some other developed economies. These increases were aimed at pulling inflation back under control and occurred during a period of relatively strong economic growth. Households proved more resilient than many expected, and debt was still comparatively cheap.
By 2024, expectations shifted. Major banks forecast rate cuts, with most tipping the cash rate to fall into the low 3% range by mid to late 2025. CBA went further, forecasting 2.85% by June 2025. Those forecasts followed overseas markets and easing inflation toward the RBA’s 2% to 3% target. In reality, rates did not move in 2024.
In 2025, the narrative changed again. We were told we were in a rate reduction cycle. Three cuts followed, despite core inflation not reaching the 2.5% midpoint. In my view, that was an overreaction, and inflation has since moved back above 3%.
Where are we now?
Business and home loan rates are now around 6%. Profitability is under pressure and economic growth is weaker than it was in 2022. The 0.25% rise in May 2026 has effectively unwound all of the 2025 cuts, which arguably should not have happened.
This time, inflation is being driven by external forces. War and broader economic conflict are the main drivers, rather than domestic stimulus, strong household spending or cheap debt. That distinction matters, because any rate move now flows directly into business and household cash flow.
In contrast, farmers had more protection in 2022. Seasonal conditions and grain prices were strong, and despite higher input costs, it was a very profitable year for many. At this meeting, I believe rates should have been left on hold.
Where to from here?
Over the medium to long term, markets tend to correct. Conditions usually normalise. For now, the focus is on controlling what you can control.
Australia still has a strong currency. If interest rates continue to rise, it could strengthen further.
Unsurprisingly, conversations about fixing interest rates have picked up. In some situations, for some borrowers, fixing can make sense.
At current levels, fixing often comes with a 60 to 80 basis point premium. At that cost, it is unlikely to provide an effective hedge over a two to three year term.
There is a risk to consider. If rates were to rise another 1% over that period, taking the cash rate to 5.10%, fixing would prove beneficial. That risk needs to be weighed carefully, case by case.
The key is understanding your position and making decisions that suit your business and cash flow.