Australia’s monetary policy is going a different direction to most comparable economies around the world. The Reserve Bank of Australia has lifted the cash rate again in May while as many as three hikes are predicted for 2026. Why is this the case when both the UK and Canada are hold rates steady?
Inflation.
That dreaded word has been on our minds since the world opened up again after the pandemic. The RBA has wrestled with inflation like Hercules and the Nemean lion but is struggling to come out on top.
Australians have now experienced three rate cuts and three hikes in just over a year. That’s the fastest the RBA has gone from easing to tightening in 15 years.
How do we compare?
While the rest of the world is feeling the inflationary effects of the war in the Middle East, Australia has its own unique problems.
Both the U.S. Federal Reserve and the Bank of England (BoE) have held rates steady despite feeling the pinch from the oil crisis and similar supply chain issues Australia is. But none of them have interest rates above 3.75%.
Australia had issues with inflation before the Iran conflict which has only exacerbated things. Inflation was within the 2-3% target range in early 2025 but has since remained stubbornly above 3%. Currently, inflation remains steady at 3.3% over the year to March.
Australian Bureau of Statistics data shows that the Consumer Price Index (CPI) rose to 4.6% for the 12 months to March, up from 3.7% in February.
What does this mean for you?
For borrowers, this has significant implications for not only themselves, but the broader housing market. According to new PropTrack data, national home prices fell 0.1% in April, the first price drop this year.
Don’t get too excited though, the national median home value still sits at $910,000, 8.5% higher than a year ago.
Prices are dropping not because of a surplus of supply, but a lack of consumer confidence especially as the RBA further limits borrowing power. Population growth and supply constraints mixed with high construction costs have put a floor under prices.
Despite this all of this pressure, demand hasn’t slowed enough with the RBA saying that the economy is working close to capacity. Usual market behaviour will therefore heavily affect prices and risks pushing inflation even higher.
The BoE has kept their rates at 3.75% in order to see what the economic impact of the Iran war brings. Something that depends entirely on its length. They claimed that monetary policy ‘cannot affect global energy prices.’
The U.S. is waiting to observe further flow on effects, while Canada is facing cooler growth and is hesitant to raise rates.
If there is one thing we can say with any certainty, it’s that there is little but uncertainty ahead of us in the property market. The RBA is trying to keep inflation low and stable, but in the 40 quarters since 2016, they’ve only achieved this 13 times.
If you’re looking to keep yourself sheltered from the storm, get in touch with the loan experts at It’s Simple today. Whether it’s moving to a fixed rate or extending your home loan, they’re sure to find the right solution for your situation.