The RBA Won’t Raise Interest Rates in February: Here’s Why

Right now, the dominant narrative says the RBA is gearing up for another rate hike in February. Economists are lining up behind it, while headlines are warming up. Some banks have even started nudging term deposit rates higher, acting as if a hike is already a done deal. I don’t buy it.

Yes, inflation is still too high and remains stubborn, but the idea that the RBA is about to pull the trigger misrepresents how they make decisions and how the data is evolving beneath the surface.

The RBA doesn’t react to one noisy CPI print or a scary headline. It breaks inflation down, strips out the extremes, and focuses on momentum. Trimmed mean inflation, services inflation, and persistence matter far more than whether a single component spikes in one month. When you look at CPI through that lens, the story becomes far less dramatic.

Why the RBA is unlikely to Raise Interest Rates

Goods inflation continues to cool, imported price pressures are easing, and retail discounting is becoming more visible. Fuel prices also softened leading into December, and the Australian dollar has remained relatively stable. These forces are all working in the same direction.

Housing and services remain the pressure points. Rents are still rising, but interestingly, the most recent monthly CPI Indicator report published by the Australian Bureau of Statistics shows services like insurance, health, and education are all pointing down and lower than they were in April last year.

Put this all together, and inflation is likely to edge lower again. While it’s not enough to celebrate or justify a cut, it’s enough to justify being patient.

That’s why a February hike looks unlikely. The RBA already knows inflation is sticky, and another reminder doesn’t change the playbook. Keeping rates on hold maintains a restrictive policy stance without risking unnecessary harm to households or the labour market.

The RBA is looking for confirmation, not chaos

The more interesting twist is what the banks are doing. By lifting term deposit rates early, they’re positioning for a hike that hasn’t happened yet. That may prove premature. While banks don’t like being behind the curve, they don’t set monetary policy. So, if the RBA holds, those higher deposit rates may look less like foresight and more like a competitive grab for funding.

For everyday Australians, the takeaway is simple. Panic decisions rarely pay off. Locking in assumptions based on bank forecasts can backfire, especially when the underlying data shows inflation cooling slowly, not reigniting. The RBA wants confirmation, not chaos and right now, the numbers support waiting.

What are the best and worst-performing sectors this week?

The best-performing sectors include Utilities, up over five per cent, followed by Energy, up over three per cent and Healthcare, up under half a per cent. The worst-performing sectors include Information Technology, down over 4 per cent, followed by Real Estate, down over 2.5 per cent, and Communication Services, down over 1.5 per cent.

The best performing stocks in the ASX top 100 include Lynas Rare Earths and Evolution Mining, both up over eight per cent, followed by Origin Energy, up over seven per cent. The worst-performing stocks include Pro Medicus, down over 12 per cent; Life360, down over 9 per cent; and A2 Milk, down over 8 per cent.

What's next for the Australian stock market?

The All Ordinaries edged lower this week, easing by just over 0.5 per cent as at the close on Thursday, with weakness across Technology, Real Estate and Financials weighing on the index. Utilities and Energy offered some support, but the absence of meaningful participation from the Materials sector meant the market lacked the conviction needed for a more decisive stabilisation.

That said, a pause in Materials is far from concerning. The sector has rallied more than 40 per cent since July last year, and a period of consolidation following such a strong advance is both healthy and expected.

Looking ahead to February, investors should be prepared for increased volatility. CPI data is due late January, followed closely by the February interest rate decision, before the reporting season gathers momentum. This reporting period will be particularly telling, as the effects of tariffs may only now be beginning to filter through to earnings. With less than a year having passed since these measures were introduced, any impact on margins and profitability is likely to emerge with a lag.

From a technical standpoint, there is currently little cause for alarm. The market has pulled back to the 9,100-point level, an area that proved to be strong support in September last year. A decisive break below this level would raise the risk of a move toward 8,800, but at this stage that outcome appears unlikely.

For now, investors should expect a choppy end to January and a volatile start to February as the market digests a mix of macroeconomic data and company-specific developments. This is an environment that favours discipline, patience and preparation over haste.

For now, good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.

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