Rabobank’s Michael Every says Australia’s macroeconomic backdrop has changed in a meaningful way. Minutes from the Reserve Bank of Australia (RBA) lay out the case for a 25 bps rate rise, noting that staff forecasts were “materially stronger than those produced in August and November”.
The IMF warned Australia that its 5% deposit scheme for first-time home buyers will lift housing inflation. It said the scheme should be removed. The article also reports warnings that it may already be too late to pull back the measure.
Policy Tension In Australia
This mix of housing support and higher interest rates is said to make the economy, and the path of the Overnight Cash Rate, harder to forecast. The piece adds that the RBA has previously warned that housing measures like this can be inflationary.
The article notes it was created with help from an artificial intelligence tool and reviewed by an editor.
We are seeing a clear clash between the RBA’s recent rate hike and government policy. The central bank’s minutes from late 2025 confirm that forecasts are now “materially stronger,” which supports a more hawkish stance. But fiscal support alongside monetary tightening adds uncertainty for the Australian dollar and bond markets.
This is not just a debate on policy. January data showed Q4 2025 inflation was still high at 4.5%, above expectations. At the same time, CoreLogic data showed property values in major cities like Sydney rose by more than 3% last quarter, which works against the RBA’s goals. The IMF’s warning that the 5% deposit scheme is pushing up prices seems to be showing up in the data.
Implications For Rates Volatility
For those of us in derivatives, this points to higher volatility in interest rate products in the weeks ahead. The RBA may be pushed into a more aggressive path than the market expected just a few months earlier in late 2025. In that setting, using options to hedge against, or express a view on, further surprise policy moves may be sensible.
We should watch the ASX 30 Day Interbank Cash Rate Futures, which have repriced sharply since January. The market now reflects at least a 70% chance of another 25 bps hike by June. That is a big shift from last year, when traders expected rate cuts. Positioning for a higher-for-longer rate outlook through futures or swaps is the most direct response to this ongoing policy conflict.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
