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Hedge Clippings | 06 February 2026 Tuesday's rate increase by the RBA of 0.25% to 3.85% was well telegraphed by market expectations leading up to the meeting, thanks to December's annual inflation number jumping to 3.6%, even though those same market expectations had been for a reduction in inflation prior to the number being released. One could cynically assume that the market is no better at forecasting the movement of either inflation or the cash rate than the RBA itself. What is also clear, albeit with the benefit of hindsight, is that the RBA should not have cut rates three times in 2025, and even when they did so for the third time in August, the market - particularly the big four banks, but also practically every other noted economist - should not have jumped on the bandwagon and forecast a further 2 or 3 reductions by mid to late 2026. Seed Fund Management's Nick Chaplin and Renny Ellis from Arculus Funds Management have both been arguing against last year's cuts from the RBA, and the banks' forecasts, every time we met with them over the past year, but without the benefit of hindsight. We caught up with Nick and Renny immediately after Michele Bullock's media presentation on Tuesday, (see video link below) and they were adamant (again, without the benefit of hindsight) that the RBA had got it wrong, including the view that the first cut in February, in the lead-up to a federal election, was unwise. That was followed by a further cut in May, and under intense pressure from the media and Treasurer, again in August, even though the inflation outlook at that time was questionable, thanks to multiple government energy rebates. For a homeowner with a mortgage, you've just got to suck it up and take the view that at least you had 6 to 12 months of reduced payments before your repayments went back up again. Shame about the budget planning though! Now those same budget plans are having to factor in the market expectations for two or possibly three further rate rises this year, in place of the two reductions expected just 3 months ago, so in effect a reversal of over 1%. However, the RBA is not alone. Rates are expected to remain unchanged in the Euro area over the remainder of 2026, and possibly increase in Japan and New Zealand. The US is, of course, the outlier, in that it could go either way, once Powell has been replaced by Trump's nominee in May. One would expect whoever Trump had nominated would do his bidding, but there are suggestions that Kevin Warsh may hold the line on the Fed's independence. News | Insights Expert Analysis of the RBA's February 03 Rate Decision Global Matters: 2026 Outlook | 4D Infrastructure Quarterly State of Trend report - Q4 2025 | East Coast Capital Management January 2026 Performance News Quay Global Real Estate Fund (Unhedged) |
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