The Reserve Bank of Australia (RBA) may need to raise interest rates as early as the first half of 2026 if economic growth accelerates and labour-market conditions tighten further, according to National Australia Bank chief economist Sally Auld.

Australia’s economy is currently in a strong position compared to other major economies, benefiting from what is described as a “soft landing.” The country already operates at full employment, and output is expected to return to its long-term trend next year. However, Auld highlights that there is very little spare capacity to absorb any renewed economic upswing.

She warns that any period of above-trend economic expansion risks reigniting inflation, driven by rising wages and capacity-driven price pressures. Structural constraints in the economy present “no short-term fix.” Improvements in productivity or increases in labour supply could help ease these capacity pressures, but productivity growth remains weak at present.

Auld explains that if there is any acceleration in growth or further labour market tightening from current levels, it will likely prompt the RBA to consider raising interest rates, possibly as soon as the first half of 2026.

For forex traders, these insights suggest that the RBA’s monetary policy could tighten sooner than some expect, particularly if economic momentum picks up. Monitoring Australian growth statistics and labour market data will be crucial for anticipating shifts in official rates.

Original Source: Eamonn Sheridan of investinglive.com