Thanks for reading our second Economy & Property Market Watch for 2026. The RBA has increased the cash rate to 4.10% at its March meeting, following on from February's 25 basis point rise.
Governor Michele Bullock has repeatedly signalled that every meeting remains live and that the board won't necessarily wait for complete quarterly CPI data before acting. Markets had priced in about a 75% chance of a March hike heading into the decision, partly driven by the surge in oil prices following the escalation of conflict in the Middle East.
By increasing the cash rates, the Board signals it did not need more time to assess how February's increase was affecting the economy, and could believe that global energy shocks are likely to persist.
"The Scorecard" is updated to reflect the available data. 2026 may be a volatile ride, so let’s see how we go over the year, comparing both period to period and keeping the start as a frame of reference.
GDP growth for Q4 2025 came in at a stronger than expected 0.8% for the quarter and 2.6% year-on-year. The fastest annual pace in nearly three years and well above the RBA's forecast of 2.3%.
Inflation, however, remains sticky: headline CPI held at 3.8% in January (above the target band) while trimmed mean rose slightly to 3.4%. The Middle East situation has added an energy price risk that could push both numbers higher in February and March CPI data.
Bond yields have risen sharply, with the 10-year approaching 5.00%, the highest since July 2011. Both a reflection of domestic rate expectations and global risk repricing around energy and geopolitical uncertainty.
The RBA's decision to make a second consecutive rate rise shows that the tightening cycle is front of mind.
Headline CPI stayed at 3.8% annually as of January — the same as December and above the midpoint of the 2–3% target band. Trimmed mean inflation slightly increased to 3.4%, exceeding market expectations of 3.3%. The RBA updated its inflation forecasts in February, predicting trimmed mean inflation to peak at 3.7% by June 2026, with a return to the target midpoint not expected until around mid-2028.
On a positive note, private demand grew 3.2% annually to December, the strongest since June 2018, helping to maintain the RBA's tightening bias.
Looking to May
The Iran-Middle East conflict, which escalated sharply in early March, has added a new variable. Oil prices have risen, raising fears of energy-led inflation reminiscent of the 1970s supply shocks. RBA Deputy Governor Andrew Hauser acknowledged that sustained oil price increases could push inflation above the central bank's forecasts and prompt quicker action.
The Board continues to emphasise a data-driven, meeting-by-meeting approach. The release of February's monthly CPI (due 25 March) and Q1 quarterly CPI (due 29 April) will be crucial inputs for the May decision.
The NAB Monthly Business Survey for January 2026 indicated that business conditions softened slightly (7 compared to 9 in December), mainly due to declines in sales and profits. Nevertheless, employment remained steady for the third consecutive month. Business confidence increased slightly to 3, its highest level since October 2025. Capacity utilisation has eased somewhat from recent peaks but still stays high overall.
According to NAB's Business Pulse for March, the quarterly SME survey showed cost containment remained the dominant lever through 2025, but there are clear signs of a renewed focus on capacity building heading into 2026. Businesses planning to increase marketing activity rose from 37% in Q2 to 41% in Q4, while investment in training and talent grew from 29% to 35%. This represents an encouraging shift.
Conditions remain uneven across industries and states. Finance, business services, and property sectors stay stronger, but retail, accommodation, and food services continue to face challenges. Similar to February, Victoria remains the laggard at the state level, while Queensland and Western Australia continue to lead.
The outlook for commercial property remains largely positive, with forecasters expecting increases in capital value and rents across major sectors over the next 1–2 years. Industrial and certain hotel assets continue to outperform, while more modest growth is anticipated in office and retail properties.
The Middle East conflict and related energy price fluctuations have introduced new uncertainties to supply chain assumptions for industrial tenants, although domestic leasing fundamentals stay strong.
Looking to May
On the less positive side, the possibility of future rate rises maintains pressure on cap rates for secondary assets. For owners and investors, prime, well-located industrial and logistics assets continue to present the most resilient income streams. Secondary offices and retail sectors with discretionary exposure require careful assessment of tenant quality and lease structures.
National dwelling values increased by 0.7% in February 2026, slightly lower than January's 0.8% rise. Year-over-year, home values are now 9.6% higher than last year. The previously observed two-speed market is now clearer: Brisbane, Adelaide, and Perth continue to see monthly gains over 1%, while Sydney and Melbourne have stagnated.
Experts generally predict that growth will slow further in 2026, especially in the second half, as higher interest rates, affordability challenges, and expectations of further RBA tightening dampen optimism.
Nonetheless, limited listings, population growth, and a persistent shortage of new homes act as a strong defense against a significant decline.
Capital City Housing Performance in January 2026
| Location | Month | Quarter | Annual |
|
Adelaide
|
1.3% |
3.8% |
12.1% |
|
Brisbane
|
1.6% |
4.7% |
17.9% |
|
Melbourne
|
0.0% |
-0.4% |
5.4% |
|
Sydney
|
0.0% |
-0.1% |
7.3% |
|
Perth
|
2.3% |
6.1% |
22.3% |
|
All Capitals
|
0.7% |
2.0% |
9.6% |
|
All Regionals
|
0.9% |
2.8% |
10.8% |
Source: Cotality Home Value Index, February 2026.
Australian government bond yields have surged since the February update. The 10-year yield hit nearly 5.00% in March 2026, marking its highest level since July 2011, as markets priced in both domestic rate increases and a global risk premium linked to the Middle East conflict and rising oil prices.
The 2-year yield has risen above 4.3%, with the yield curve now sharply upward-sloping. This ongoing repricing across the 2-to-5 year segment maintains upward pressure on fixed mortgage and business loan rates, regardless of the RBA's decision.
|
Country |
Cash Rate | 10 Year | Spread |
| Australia | 4.10% | 4.95% | 0.85% |
| Canada | 2.25% | 3.50% | 1.25% |
| India | 5.25% | 6.65% | 1.40% |
| Japan | 0.75% | 2.22% | 1.47% |
| New Zealand | 2.25% | 4.75% | 2.50% |
| UK | 3.75% | 4.77% | 1.02% |
| USA | 3.75% | 4.28% | 0.53% |
Australia's yield curve has steepened considerably, and the spread over the US 10-year has widened, reflecting market views that the RBA is on a tighter trajectory than the Federal Reserve. The Bank of Japan continues to normalise cautiously. The UK and US yield curves remain in healthier structural shape. The global bond market is more volatile than at the start of the year, mainly due to energy price uncertainty.
The Australian equity market has faced a tough period ahead of the March RBA decision. The All Ordinaries is down 3.5% over the past month and around 3% over six months, reflecting the dual headwinds of rising bond yields and the intensifying conflict in the Middle East.
Resources and energy stocks have provided some offset as oil and commodity prices stay firm, but financials and technology stocks have underperformed as investors adapt to a higher-for-longer rate outlook. Performance continues to trail behind the stronger global indices.
Global equity markets have sharply declined in March. All five major indices listed are down over the past month in a notable shift from the broad gains of 2025. The conflict in the Middle East has been the primary factor, causing energy prices to surge and increasing fears of stagflation across developed markets.
The Dow Jones closed down around 6% in the past month and ended a third consecutive week of declines as the S&P 500, Dow, and Nasdaq all fell, with software and tech stocks leading the losses.
Japan's Nikkei reached a record high before dropping sharply. Its heavy reliance on Middle Eastern oil makes it particularly exposed to the current energy shock.
The UK's FTSE 100 declined on weak GDP data, adding to other headwinds this week.
|
Country |
Mark |
1 Mth |
6 Mth |
1 Yr |
5 Yr |
|
|
Australia |
All Ords | -3.5% | -3.0% | 9.0% | 29.5% | |
|
Germany |
DAX | -5.6% | -1.2% | 2.18% | 68.2% | |
|
Japan |
Nikkei | -6.1% | 19.4% | 44.0% | 84.79% | |
|
UK |
FTSE |
-5.3% | 8.2% | 18.9% | 50.9% | |
|
USA |
Dow Jones |
-6.0% | 1.4% | 10.5% | 56.9% | |
|
Average |
-5.3% | 4.96% | 16.9% | 58.06% |
The Australian dollar is roughly 0.70 against the US dollar, trading near three-year highs and up around 11% over the past 12 months.
The main factor boosting the AUD is the market repricing of Australian interest rate expectations. With the RBA expected to raise rates further, the AUD is being compared to currencies tied to more dovish central banks. Higher oil prices have also supported commodity currencies.
For import-focused businesses, an AUD at 70 cents offers meaningful relief on USD-denominated input costs. For exporters, it will create a competitive challenge if pricing sustains. The main risk to the AUD in the near term is if the global risk appetite declines significantly due to the Middle East conflict, safe-haven demand for the USD could increase and weigh on the AUD.
Let's hope to be telling a less-volatile story by May.
2026 RBA Monetary Policy Announcements
Thank you for reading Market Watch. The next RBA cash rate announcements will be at 2:30pm on the following Tuesdays in 2026:
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