The Reserve Bank of Australia is widely expected to raise its cash rate by 0.25 percentage points to 4.6% on Tuesday, while HSBC chief economist Paul Bloxham puts the risk that Australia falls into a technical recession at around 50%.
The RBA is trying to bring inflation down without pushing the economy into a downturn.
The RBA has lifted the cash rate three times in 2026, by 75 basis points in total, 4.35%. A fourth rise would take it to 4.6%, the highest since late 2011. Bloxham expects a further rise in November, taking the rate to 4.85%.
Bloxham expexts growth to come close to stalling in the December and March quarters. A technical recession means two consecutive quarters of contraction. He points to weak productivity growth, which leaves little room for the economy to expand without pushing inflation higher. He says growth may need to slow considerably,or the economy may need to shrink, for underlaying inflation to return to target by late 2027. Annual headline inflation was 3.5% in July and trimmed mean inflation was 3.6%, both above the RBA's 2 to 3 % target. Unemployment rose to 4.6% in August. Employment grew by 39,500 but full time jobs fell by about 6,000.
Not all forecasters share HSBC's caution. A survey of economists puts the chance of a recession over the next 12 months at 20%. Governor Bullock said this week that inflation risks are materialising, but she did not commit to a rise. Deputy Governor Andrew Hauser earlier named the Middle East conflict, the global AI boom and weak productivity as the main inflation risks. Futures markets are pricing two further rises after Tuesday, which would take the rate to 5.10%. One analyst warns that mortgage payments already take a near-record share of household income.
The RBA held at 4.35% at its previoud meeting, after the third rise. Oil prices have been climbing again.
A 0.25 point rise would cost borrowers hundreds of dollars a year. Economists expect more households to report mortgage stress. The monthly inflation figures comes out Wednesday.
