ANZ’s head of Australian economics, Adam Boyton, anticipates that the Reserve Bank of Australia (RBA) will increase interest rates by 25 basis points at their upcoming meeting next week. However, Boyton suggests that this increase would be a singular precautionary measure rather than the commencement of an extensive rate hiking cycle.
Boyton cites several factors supporting the case for a rate rise. These include the increase in the annualised rate of trimmed mean inflation to 3.9 per cent throughout the second half of 2025, the robust December labour force survey, and the fact that GDP growth is nearing the RBA’s estimate of potential output. He believes that the RBA may conclude that demand is outpacing supply and that adjusting interest rates would help ensure inflation returns to the target range. “As a result, we expect a 25 basis point rate increase in February,” he stated on Wednesday.
Despite predicting a rate hike, Boyton acknowledges that the RBA could refrain from further increases after this initial move. This consideration is based on the overall balance in the labour market, the deceleration of consumption growth, and an increase in the Australian dollar trade-weighted index.
Boyton anticipates that a rate increase would lead to a notable softening in leading activity indicators, such as auction clearance rates, consumer sentiment, and business conditions and confidence. He believes that this weakening activity would diminish the justification for subsequent rate increases beyond the initial one.
