RBA rate hike in February a “tangible risk”: HSBC

Yasmine Raso

Senior Journalist, Financial Newswire

22 January 2026

New commentary from HSBC has warned of a potential “painful” rate hike to come out of the Reserve Bank of Australia’s (RBA’s) first monetary policy decision of the year less than two weeks away, pointing to concerns over last year’s late inflation uplift and stalling productivity growth.

The bank’s Chief Economist, Paul Bloxham, said while there is no uncertainty among market and central bank that it will deliver a hike the only question would be when, after the “upside surprise” in Q3 2025’s inflation figures “changed the game” as expected.

He confirmed that HSBC’s central case remains that a tightening cycle is expected to commence in the second half of the year, but there is a “tangible risk” of a move to hike as early as February that cannot be ruled out.

Markets have priced in a 30 per cent chance of a 25-basis-point increase in February, as the RBA awaits the release of two key data prints – the December 2025 jobs figures on 22 January and the Q4 2025 inflation figures on 28 January – to “firm up [its] view”.

“The market is looking for a steady unemployment rate at 4.3%, which would not rule out a hike in February,” Bloxham said.

“Our central case has the unemployment rate rising to 4.5%, although even this would not be enough to rule out a hike, as the Q4 CPI figures will matter more. We expect the Q4 trimmed mean to print at 0.8% q-o-q and 3.2% y-o-y, but a higher print risks a February hike.

“If the RBA is forced to hike in February it will not be pretty. This is because it will be very difficult for the RBA to frame this as a positive story.

“Although growth is in an upswing it is not particularly strong and the private sector recovery is only fledgling. The jobs market is also not strong. Whatever the December print shows, employment growth has been slowing in a trend sense and job vacancies have been trending lower.

“Private sector employment growth has been weak, with public job creation still an overweight driver of job creation.”

Bloxham pointed to “dismal” productivity growth as the main driver behind the uplift in inflation, pressuring the economy’s supply at the same time as strong public spending has squeezed private sector activity.

“Low productivity growth has weighed on growth in Australian living standards… and it has clear implications for the RBA. It means the economy cannot grow as fast as it used to be able to. It means Australia’s potential growth rate is lower than it used to be,” he said.

“If the RBA deems that it must lift the cash rate as soon as February, it will be a clear signal that the economy is already growing too quickly, even though, at only 2.1, growth is still quite low when compared to history

“The rate hike would also be intended to slow demand in the economy down, but will, of course not actually fix the primary problem – which is that the supply-side and productivity are weak. If the RBA were to portray a move like this as just a ‘tweak’ to policy, or ‘finetuning’ the policy setting, rather than the beginning of a new hiking phase, this would also be risky.

“Our central case – that rate hikes won’t arrive until Q3 2026 – is a bit less painful than this – albeit marginally. In this view, by that time, we expect that the private sector recovery will be creating more jobs, it will take over more from the public sector as the driver of growth and the unemployment rate may be starting to decline.

“Productivity will get a modest cyclical lift from the gradual shift in the composition of growth and although the RBA would still be hiking, they will more plausibly be able to argue that they are lifting rates because the economy is in a decent upswing.”