Behind the change is a batch of data pointing to an economy picking up speed rather than cooling. Inflation has reaccelerated, with annual consumer price growth lifting to 3.8% in October – well above market forecasts and clearly outside the RBA’s 2–3% comfort zone.
National accounts and household spending figures released this week suggest momentum heading into the new year is stronger than previously assumed.
That’s been enough for fixed-income strategists to conclude that investors no longer see further cuts as likely and are instead building in the risk of rate increases from early 2026.
Inflation back above the target band
The latest inflation print is central to the market rethink. Consumer prices rising at 3.8% year-on-year means the RBA is again facing an upside miss on its target band. That pushes the conversation away from “how far will rates fall?” and back toward “how long can they stay on hold – and do they eventually need to rise?”
A sustained overshoot on inflation raises the prospect of higher term funding costs for banks, a renewed upward trend in fixed mortgage rates, and less scope for sharp discounting on variable rates.