RBA Hikes to 4.10%, But the Close Vote Calms Markets

RBA Lifts Rates as Oil Shock Reignites Inflation Fear

The Reserve Bank of Australia raised the cash rate by 25 basis points to 4.1%, a move that was widely expected by the market. The main driver was the resurgence in inflation, which has worsened following the outbreak of the Iran war and the sharp rise in oil prices, up more than 50% in just two weeks.

The RBA made it clear that inflation is now likely to remain above target for longer than previously expected, and that the risks have shifted to the upside. That includes the risk that inflation expectations become unanchored. In that context, Australia is now standing out as one of the only major central banks outside Japan still in tightening mode.

The split vote was interpreted as slightly dovish. The Australian dollar edged lower to US70.56 cents and bond yields also fell, suggesting the market took the decision as reducing the likelihood of a more aggressive hiking path from here.

Before the decision, markets had been pricing in around 70 basis points of total tightening for 2026. After the close vote, that has now been scaled back to roughly 39 basis points by year-end, which is effectively one to two more hikes.

Schroders’ Kellie Wood believes the RBA is now done hiking. The view there is that the bank will likely balance upside inflation risks against weaker growth by keeping policy restrictive for longer, rather than continuing to lift rates further.

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Stocks to buy if the RBA raises rates

1. Financial stocks

It is easy to point to the Big Four banks, but we would be a bit more selective. While the banks benefited from higher interest rates compared to the COVID period, they also face higher funding costs on their warehousing and wholesale facilities.

We think Macquarie (ASX: MQG) stands out more clearly as a beneficiary. It has been able to attract deposits not just because of higher rates, but because those rates have been offered with few conditions attached. Customers do not need to jump through hoops with minimum deposits or temporary bonus periods, which makes the offering more compelling.

Another name worth considering is Challenger (ASX: CGF). Not every retiree is sitting on unlimited wealth, and Challenger’s focus on lifetime annuities could become more attractive in a higher-rate environment. For retirees seeking guaranteed income from upfront lump sums, that offering may resonate more strongly.

2. Resource stocks with low debt and supportive commodity prices

Resource companies, especially larger diversified miners, can benefit if stronger economic conditions continue to support demand for commodities. That said, balance sheet quality matters. Companies with high debt or exposure to weaker commodity markets may struggle even in a firmer macro backdrop.

Rio Tinto (ASX: RIO) stands out here. While copper offers strong long-term thematic appeal, aluminium may be the more interesting part of the story in the near term. Aluminium has been less volatile than iron ore and copper over the past couple of years, remains one of the most widely used metals globally, and carries attractive characteristics around recyclability and weight.

There could also be flow-on benefits for parts of the supply chain, including names like Aurizon and Orica, although that depends on how much of their revenue is tied to stronger commodities.

3. Defensive consumer stocks

In a higher-rate environment, we would lean toward defensive consumer names with strong balance sheets and solid cash flow. The major supermarkets fit that category, with Coles (ASX: COL) standing out given its recent outperformance relative to Woolworths.

Insurers such as Insurance Australia Group (ASX: IAG) and QBE (ASX: QBE) may also hold up well, along with registry and financial services businesses like Computershare (ASX: CPU), which can benefit from higher rates in a more direct way.

Stocks to sell if the RBA raises rates

1. Discretionary consumer stocks

Higher rates usually mean higher borrowing costs and weaker consumer spending, which tends to hurt discretionary retail. When households come under pressure, spending that was once optional becomes even easier to cut back.

We would be cautious on names such as Myer (ASX: MYR), Super Retail (ASX: SUL), Premier Investments (ASX: PMV), and Bapcor (ASX: BAP). Wesfarmers (ASX: WES) also deserves some caution because of its exposure to Bunnings, although that risk is partly balanced by Kmart’s more value-focused retail position.

2. Real estate stocks and REITs

Property trusts are often among the more obvious losers when rates rise because many carry meaningful debt loads. Higher financing costs can pressure earnings while also dragging on asset valuations.

That is particularly relevant for office-exposed REITs. We would highlight Cromwell (ASX: CMW), Dexus (ASX: DXS), GPT (ASX: GPT), Mirvac (ASX: MGR), and Centuria Office REIT (ASX: COF). Office assets tend to require more debt, take longer to lease up, and are more exposed to weaker economic conditions.

Retail-exposed REITs can also come under pressure if consumer spending softens. Names such as Scentre Group (ASX: SCG), HomeCo Daily Needs REIT (ASX: HDN), and Vicinity Centres (ASX: VCX) are worth watching in that context.

3. Growth stocks, especially tech

Growth stocks usually struggle when rates rise because future earnings are discounted more heavily and capital becomes more expensive. That is especially true for companies that are still burning cash, not yet strongly profitable, or already trading on elevated multiples after a long run.

In that bucket, we would be cautious on TechnologyOne (ASX: TNE), Megaport (ASX: MP1), WiseTech (ASX: WTC), Block (ASX: SQ2), and Nuix (ASX: NXL).