Millions of Australians are bracing for another interest rate rise on Tuesday, as economists warn that government budget spending could add to inflation pressures. The Reserve Bank of Australia (RBA) is expected to lift the official cash rate by 25 basis points at 2.30pm, placing further strain on approximately 3.6 million mortgage holders.
Third Consecutive Rate Hike in 2026
If locked in, the rise would mark the third consecutive rate hike in 2026, reversing last year’s cuts and taking the cash rate back to 4.35 per cent. This looming increase comes as Treasurer Jim Chalmers is reportedly preparing to unveil a multibillion-dollar budget boost aimed at easing cost-of-living pressures.
Budget Plans and Tax Offset
Reports suggest Chalmers is poised to unveil an “earned income offset” worth between $200 and $300 for taxpayers in next week’s federal budget. However, HSBC chief economist Paul Bloxham has warned that broad-based relief risks fuelling inflation and forcing the RBA to act more aggressively.
Bloxham told Sunrise on Tuesday that the Reserve Bank already has an “inflation challenge”, and additional spending could complicate its job. “The RBA’s trying to deal with inflation that’s already high,” he said. “The more the budget is used to do broad-based spending rather than targeted spending, the more likely it is the RBA will have to lift interest rates even more.”
Economist Warning on Spending
Bloxham explained that while the government’s rationale is clear amid cost-of-living pressures, poorly targeted support could backfire. “If households have got more income to spend, they will spend more income in all likelihood, and that will put more upward pressure on inflation,” he said.
Bloxham’s warning echoes concerns from the International Monetary Fund, which has urged governments to keep any fiscal support targeted and temporary. All eyes will now turn to May 12, when the federal budget is handed down, and the full scope of the government’s cost-of-living plan is revealed.
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