Growth resurgence raises fresh interest rate concerns

Binaya Dahal

Journalist

11 February 2026

Australia’s stronger-than-expected economic rebound is colliding with a global shift toward “run-it-hot” policy settings, raising the risk of higher interest rate for longer period amid sticky inflation, asset management firm Schroders says.

Multi-asset portfolio manager at Schroders, Adam Kibble said the delayed effects of global price relief and ongoing fiscal support are reigniting growth, and that might complicate Australia’s inflation fight.

“Global growth is showing clear signs of reacceleration as the impact of rate cuts since mid-2024 flows through to economic activity,” Kibble said.

“With governments continuing to prioritise cost-of-living support and stimulus spending, we are entering a ‘run-it-hot’ policy environment that could see inflation stall or even rebound during 2026.

“This is creating a higher-for-longer interest rate backdrop that investors need to be prepared for.”

Kibble said that ongoing capacity constraints across parts of Australian economy were slowing the disinflation process, raising the likelihood of further policy tightening by the Reserve Bank of Australia (RBA), following this week’s interest rate increase.

“Recent data highlights strong domestic demand and improving business confidence, but inflation remains sticky,” he said.

“The RBA’s latest rate increase reflects the persistence of pricing pressures, and markets are increasingly recognising that further tightening may be required if inflation does not moderate as expected.”

Furthermore, Kibble added that the recent strength in the Australian dollar had provided opportunities to actively manage currency exposures.

“The Australian dollar strengthened significantly earlier in the year as interest rate differentials widened and expectations of RBA tightening increased,” he said.

“However, with sentiment indicators suggesting the currency had become overbought, we have begun reducing exposure at elevated levels.”

Schroders has urged investors to favour longer-term bonds in Australia to mitigate the impact of potential RBA tightening, while maintaining exposure to shorter-dated US bonds to capture potential easing opportunities and reduce volatility.