Rabobank’s Michael Every points to a material change in Australia’s macroeconomic backdrop. Reserve Bank of Australia minutes set out reasons for a 25 bps rate rise, stating 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 increase housing inflation and said the scheme should be removed. The article also reports warnings that it may already be too late to withdraw the measure.
Policy Tension In Australia
This mix of housing support and higher interest rates is described as making it harder to forecast the economy and the path of the Overnight Cash Rate. The piece adds that the RBA had previously warned about the inflationary effect of such housing measures.
The article notes it was created with the help of an artificial intelligence tool and reviewed by an editor.
We are seeing a major clash between the RBA’s recent rate hike and government policy. The central bank’s minutes from late 2025 confirmed their forecasts are now “materially stronger,” justifying their hawkish stance. This contradiction between fiscal stimulus and monetary tightening creates significant uncertainty for the Australian dollar and bond markets.
This isn’t just theory; the latest data from January showed Q4 2025 inflation was stubbornly high at 4.5%, beating expectations. Meanwhile, CoreLogic data revealed property values in major cities like Sydney jumped over 3% last quarter, directly undermining the RBA’s efforts. The IMF’s warning that the 5% deposit scheme is pushing up prices appears to be playing out in real-time.
Implications For Rates Volatility
For us in the derivatives market, this signals that volatility in interest rate products is likely to increase in the coming weeks. The RBA is being forced into a more aggressive path than the market anticipated just a few months ago in late 2025. This suggests paying for options to hedge against or speculate on further unexpected policy moves could be a prudent strategy.
We should look closely at the ASX 30 Day Interbank Cash Rate Futures, which have repriced significantly since January. The market is now pricing in at least a 70% chance of another 25 basis point hike by June, a sharp reversal from last year’s expectations of rate cuts. Positioning for a higher-for-longer rate environment through futures or swaps seems like the most direct response to this ongoing policy friction.
