Bendigo Bank's February Economic Update

In Bendigo Bank’s first economic update for 2026, our Chief Economist David Robertson outlines:

• Key reasons the RBA hiked rates
• The pressing need for more housing supply
• Why the Aussie Dollar is outperforming amid global uncertainty
• The outlook for 2026, will more hikes be coming our way?

Rates are up, but what comes next in 2026? Bendigo Bank’s Chief Economist delves into the latest jobs, housing and inflation data and the recent surge in the Aussie Dollar.

With yesterday’s rate hike no surprise, Bendigo Bank Chief Economist, David Robertson has described yesterday’s increase as a significant development for monetary policy.

“Yesterday’s 3.85% was no surprise by the time it was announced, but caps off an extraordinary U-turn for monetary policy compared to where we were in mid-to-late 2025 and marks the shallowest RBA easing cycle in history, only three cuts ‘peak to trough’ totalling three quarters of a percent,” Mr Robertson said.

Job numbers a key reason for hike

“Our view at the end of last year was the RBA board would not hike rates unless core inflation rose above 3.5%, however, the latest job numbers in particular changed the equation for the RBA.”

“With unemployment unexpectedly falling in December to 4.1%, demand for labour and resulting inflationary pressures will be more persistent this year.

“These job numbers, combined with the latest CPI data, household spending, and housing trends, was all a bit too much for the RBA policy board’s risk tolerance,” Mr Robertson said.

Housing, a big issue for inflation

Mr Robertson said housing was a major contributor to the recent rebound in inflationary pressures with rental prices and the cost of new dwellings up significantly.

“The latest Home Value Index from Cotality for January showed another rise for dwelling values, up over 9% in the last 12 months on average for capital cities, and over 10% for regional values, proving the pressing need to add more supply hasn’t abated,” Mr Robertson said.

Strong AUD set to help balance rates throughout 2026

“As well as this unwelcome rebound in inflation and interest rates, global markets have endured a turbulent start to 2026 with geopolitical tensions around the world. One of the beneficiaries has been the Aussie Dollar, rising to almost 71 cents last week before a pullback, along with commodity prices.

“The higher exchange rate is something we have forecast for some months, but this rally has been slightly ahead of schedule, much like the timing of RBA rate hikes, which we had expected in 2027 rather than this year.

“More positively, the higher exchange rate will be helpful for inflation and is one of the reasons we still expect stable RBA rates for the balance of 2026, leading into a jump in growth and productivity for our economy in Financial Year 2027, assisted by the recent uplift in tech business investment,” Mr Robertson concluded.