The winners and losers of an RBA rate hike
Banks, insurers and miners are predicted to be among the ASX’s biggest gainers if the Reserve Bank raises official interest rates next year; This is a scenario that money markets are pricing in following higher than expected inflation figures.
As the Central Bank prepares to hold its final board meeting of 2025 on Tuesday, markets are predicting that the current 3.6 percent cash rate will remain unchanged this year, with some predicting rates will rise in 2026.
Such a rise in interest rates could help banks expand profit margins, while insurance companies tend to earn higher returns on their investment portfolios when interest rates rise, experts said.
Market observers said miners may be viewed more favorably in an environment of rising rates, but added that real estate stocks and infrastructure are more likely to struggle.
Michael McCarthy, market strategist at online stock trading platform Moomoo, said he thinks interest rates will hold steady on Tuesday and rise early in the new year, and that banks and companies with lower debt or clean balance sheets will be in the best position.
“The political environment right now may not be conducive to that, but banks have traditionally benefited from interest rate movements because they give them the opportunity to increase their margins,” he said.
Meanwhile, companies that tend to rely on more debt, such as infrastructure and real estate investment trusts, will likely feel the squeeze as interest rates rise or stay high, McCarthy said.
Financial markets have priced in a rise in the RBA interest rate in 2026 after the monthly consumer price index showed inflation rising from 3.6 per cent in September to 3.8 per cent by October. The RBA is targeting inflation of 2 to 3 per cent, and various bank economists have recently changed their forecasts to no longer foresee cuts from the RBA.
Hugh Dive, chief investment officer at Atlas Fund Management, said banks and insurance companies generally perform well when interest rates rise, while publicly traded real estate funds tend to suffer when rates rise due to their high gearing. “Overall, banks are doing well in a rising interest rate environment,” Dive said, but added that he expects interest rates to remain stable rather than rise next year.
While markets generally view increases in interest rates as bad news for stocks, UBS strategist Richard Schellbach said the prospect of higher interest rates is not necessarily a negative because it is an indication that the economy is stronger than expected.
Schellbach said there could be a period of policy divergence where the RBA and the US Federal Reserve are expected to cut interest rates further, which could be good news for the Australian dollar.
“Periods of strong Australian Dollars have historically been associated with periods of strong Australian equity market performance,” he said.
A higher Australian dollar is generally associated with the strong performance of commodity prices and a “risky environment for global growth”, which is good news for miners, Schellbach said. He said corporate profit margins also had room to expand as the Australian dollar rose because most companies’ import costs were denominated in US dollars.
Craig Sidney, senior investment advisor at Shaw and Partners, also said relative interest rates, particularly the differences between Australian and US interest rates, could play a big role in market movements.
“The expectation is that Australian interest rates will remain steady and rise in the second half of next year, while US interest rates are expected to fall,” he said. “This will put further upward pressure on the Australian dollar.”
This would put further pressure on healthcare firms that make the majority of their earnings in US dollars, such as Resmed and CSL, and companies that invest in US bonds, such as QBE, Sidney said.
On the other hand, Sydney said many resource stocks, including mining giant BHP, could benefit, and coal companies such as Whitehaven could gain momentum after being out of favor for a while.
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Clancy Yeates is deputy business editor. He covered banking and financial services and was previously a national business correspondent in the Canberra bureau.Connect with: excitement or email.
Millie Muroi is the economics writer for The Sydney Morning Herald and The Age. He was previously an economics correspondent for the Canberra Press Gallery and a banking writer in Sydney.Connect with: excitement or email.
