Monetary Policy Board Weighs Global Rate Hikes and Tightening Aussie Finances

At their August meeting, the Monetary Policy Board members discussed the outlook for central bank policy rates globally. They noted that market participants expected policy rates in many advanced economies to rise over the coming 18 months, with larger increases anticipated where monetary policy was more accommodative.

The expected rises were smaller in Australia and other countries compared to those in New Zealand, Canada, Japan, the United States, and the United Kingdom. The members also discussed the impact of persistent underlying inflationary pressures on global markets, despite recent inflation outcomes being generally lower than expected.

Yields on long-term bonds issued by governments of most advanced economies had risen since the start of 2026, with longer term yields increasing more noticeably in the United States and Japan. Measures of near-term inflation compensation from shorter term bonds had eased in most countries, including Australia, as oil prices retraced from their earlier peaks.

The members discussed financial conditions in Australia, noting that they had tightened in response to three increases in the cash rate since May 2026. The current cash rate target was at the top of the range of model- and market-based central estimates of the nominal neutral rate. Medium- and long-term real interest rates derived from inflation-linked bonds were also around their highest level in over 15 years.