The Reserve Bank of Australia’s (RBA) latest rate rise might affect your household budget, but it could also shape returns and income across different investments. Here’s what prompted the decision, what might come next and what it could mean for your portfolio.
What happened
As widely expected, the RBA yesterday raised the cash rate by 25 basis points to 4.60%. The Board’s decision was unanimous, and it said it may raise rates again if needed.
Why the RBA acted
The RBA said the inflation risks it identified in August are now “materialising”. Higher oil prices, linked to conflict in the Middle East, are adding to cost pressures. The AI investment boom is also supporting global demand and pushing up prices for some technology-related goods.
Australian businesses are facing higher costs too, with the RBA noting that some are raising prices while others are “looking to do so”. If those increases flow through to the prices people pay, inflation could remain stubbornly high.
What might happen next
Australia may face a difficult mix of weak economic growth and persistent inflation. The RBA is focused on bringing inflation back to target.
My base case is that there will likely be a further 0.25 basis point rise at the RBA’s November meeting. If it happens, the cash rate would reach 4.85%.
What this could mean for your portfolio
Australian shares: Higher borrowing costs can put pressure on companies with significant debt. Businesses that depend on consumer spending, such as retailers and home builders, may also be affected if households have less to spend.
Property companies and listed property trusts may face higher financing costs. Meanwhile, banks could benefit from higher lending rates, but that may be offset if more borrowers struggle with repayments.
Bonds and cash: When yields rise, prices of existing bonds can fall because their fixed payments may be less attractive than those on new bonds. If you hold a bond directly, you’ll still receive its scheduled payments, assuming the issuer meets them, but its market value may be lower if you sell before it matures. Cash investments may earn more as rates rise, though the change can take time and depends on the product and provider.
Now what?
Use the rate outlook as a reason to understand what you own, not as a signal to make a sudden change. Check whether your portfolio still fits your goals and time horizon, and consider how different investments may behave if rates stay higher for longer. Read our guide to building a diversified portfolio for more on how different investments can work together.
