RBA Seen Delivering Two More Rate Hikes to 4.85%

For households, that keeps mortgage pressure elevated. For the economy, it raises the odds that growth slows more sharply as borrowing costs stay restrictive for longer. And for investors, it shifts the whole rate path higher, which is what really drives currencies, bank funding costs and bond yields.

Deputy Governor Andrew Hauser reinforced the message by saying the board is “totally committed” to the inflation target, giving the hawkish tone extra weight. When both the governor and deputy governor are speaking this way, markets tend to treat it as a board-level message, not a one-off remark.

UBS’s call for two more hikes goes beyond the roughly 70% to 75% chance the market is already pricing for a 25 basis point move at the Sept. 28-29 meeting. That gap is important. If traders are underestimating the likelihood of further tightening, Australian short-end yields and the Australian dollar have room to rise, while rate-sensitive assets could come under more pressure.

The bigger investment takeaway is that the RBA is still focused on credibility. Central banks usually err on the side of doing too much rather than too little once inflation becomes sticky, because letting prices stay elevated for too long does more damage than a bit of extra economic pain. Bullock’s comments about oil, energy costs and businesses passing on prices suggest the inflation problem is not yet fading on its own.

For long-term investors, that does not mean panic. It does mean staying disciplined. If the RBA is right and the terminal rate ends up closer to 4.85%, the winners are likely to be those with pricing power, strong balance sheets and durable earnings growth. The losers are the most indebted households, leveraged businesses and anything that depends on easy money to justify its valuation. Worth watching.