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Hedge Clippings | 08 May 2026
This week saw the RBA meet most market observers' expectations by increasing rates by 0.25% - the second such move in a row, taking them back up to their previous post-COVID peak, and eradicating the three rate cuts they made last year. Hedge Clippings checked in with our regular contributors, Nick Chaplin from Seed Funds Management, and Renny Ellis from Arculus Funds Management, to get their respective views on the wisdom - or otherwise - of the Bank's decision. Both were broadly united in the view that the RBA's latest 0.25% rate rise to 4.35% may have been widely anticipated, but was poorly timed, and raised more questions than it answered. Nick Chaplin argued the move effectively reverses last year's rate cuts, taking the cash rate back to where it was before the RBA began easing. His central concern was the distinction between temporary inflation pressures and persistent inflation. With the trimmed mean holding at 3.3%, he questioned whether the RBA was reacting too heavily to energy-driven price pressures and their knock-on effects through logistics and household costs. While he accepted the Bank is right to be focused on inflation, he was skeptical of its approach, particularly the continued reliance on incremental 0.25% increases. If the RBA believes inflation risks are still rising, Nick suggested it may need to be clearer about where rates are heading, with the possibility that the cash rate could move as high as 4.85% before year-end. Renny Ellis was more direct, describing the energy shock as transitory and arguing the RBA should have looked through it, at least until the June meeting. His concern is not that inflation should be ignored, but that the Bank has acted before the full economic impact of the previous two rate increases has flowed through. Renny also warned that the decision was made ahead of a Federal Budget due next week that may include higher taxes, housing-related measures and household handouts, all of which could materially alter the economic outlook. Both Nick and Renny highlighted the risk that policy is now being tightened into a fragile environment. Ellis was particularly concerned about the potential for diesel rationing, arguing that it would almost certainly push Australia into recession. He drew a sharp contrast with 2020, when both the RBA and the Federal Government acted aggressively to avoid recession, noting that Australia's high household debt levels make a downturn especially dangerous. A key point from Renny was that the usual transmission mechanisms for monetary policy look less effective in the current environment. With the Australian dollar already strong, he questioned how higher rates would help beyond depressing house prices and household spending. Nick added that a stronger dollar could itself make it harder for the economy to avoid recession, particularly given Australia's past reliance on currency weakness and resource exports to cushion downturns. Both agreed that further rate increases may still become necessary later in the year, particularly if wages growth, the Fair Work Commission decision, fiscal policy and household spending keep demand elevated. However, both also argued that this was not the right moment to move. Their central criticism was not that inflation is irrelevant, but that the RBA has acted in a period of unusually poor visibility, with energy markets, the Budget and household stress all still unfolding. So as Renny questions in the video below, that leaves the potential that we are headed not for the "recession we had to have" but for the "recession we can't afford"? The outcome or length of a one-page, paper-thin, so-called truce in the Middle East could tip the balance. News | Insights
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