On February 7, the RBA board will convene for the first time in two months, and many are eagerly anticipating their decision on whether or not to hike rates. Homeowners, renters, aspiring homeowners, and stock investors are all anxiously waiting for the outcome. If the RBA does hike rates, asset prices may become unstable, but if they don’t, it could indicate that inflation is under control, leading to a surge in asset values.
The upcoming RBA board meeting on February 7 could result in two possible outcomes, as depicted in the chart below. The board may either decide to maintain the official cash rate at 3.1% or increase it to 3.35%. The blue line in the chart, which represents market expectations, falls in between the two possibilities and currently indicates a 60/40 likelihood of a rate hike. The odds for a rate hike have been slightly increasing in recent times.
Mortgage Lending Slowdown: Interest Rate Cuts and Market Predictions
Australia continues to experience a mortgage lending slowdown, despite recent interest rate cuts by the Reserve Bank of Australia (RBA). While some borrowers are seeing relief, others remain uncertain as market predictions evolve and inflation data shifts.
Accurate Market Predictions and Rate Cut Impact
A recent chart shows strong support for the accuracy of market predictions regarding interest rates. Despite being made nine months ago during a volatile period, the forecast deviated by only 100 basis points and became more precise over time.
As of August 2025, analysts remain confident about future rate hikes. ANZ expects a rise in February, while CBA anticipates one earlier in the year. However, with three weeks until the next RBA meeting, conditions may still change.
👉 For a breakdown of how banks are responding to the August rate cut, see .
Inflation Trends and RBA Strategy
Inflation remains a key factor. The latest monthly CPI data shows a 7.3% annual rate, driven by new home and petrol prices. This suggests the RBA is unlikely to pause rate hikes in February. ANZ economist Adelaide Timbrell predicts a peak cash rate of at least 3.85% and no cuts until late 2024.
However, petrol prices have eased—from over $2 per litre in November to around $1.75 now. Inflation pressure is also decreasing, with smaller monthly price changes. The RBA will receive more detailed CPI data on January 25, covering the December quarter. If inflation peaks below expectations, pressure for a rate hike may lessen.
📊 For inflation insights and property finance updates, visit .
Labor Market and Wage Dynamics
The labor market remains strong. The unemployment rate held at a record low of 3.4%, and job vacancies nearly match the number of unemployed Australians. This gives workers more leverage in wage negotiations.
The RBA’s main concern is a wage-price spiral. If wages rise due to inflation expectations, businesses may raise prices to compensate. So far, there’s little evidence of this. Wages are increasing slower than inflation, and expectations are falling. The ANZ Roy Morgan survey shows inflation expectations at their lowest in 11 months—just 5% over the next year.
🔍 For more on wage trends and inflation expectations, check out .
This outcome is noteworthy, considering that survey respondents tend to significantly overestimate inflation. For instance, in 2019, they were convinced that inflation would be around 4%, even though it was consistently below 2%. However, it’s possible that their overestimation is merely due to error rather than a structural tendency to overestimate actual inflation.
The latest survey outcome should alleviate any concerns the RBA board might have had about not doing enough to assure Australians that it would tackle inflation. When we believe that inflation will decrease, it’s because we have faith in the RBA’s commitment to addressing the issue. The greater our trust in the RBA, the less imperative it is for them to raise rates significantly to prevent a wage-price spiral from occurring. — Jason Murphy
