Issue #5 | Rates Rise as Markets React

Interest Rates - RBA’s first rate hike in over two years
Deals Down Under - Interest rate effect on Aussie deals
ASX - ASX this week, Top 3 Winners & Losers
Other News - Aussie Politics, Sport, Culture and more

The Reserve Bank of Australia raised the official cash rate by 25 basis points to 3.85% on Tuesday, the first rate-hike in over two years, as inflation and domestic demand proved stronger than expected. Markets had largely factored in the move, with futures pricing signalling a high probability ahead of the announcement.

According to the Australian Bureau of Statistics, consumer price inflation was 3.8% in December 2025, above the RBA’s target band of 2–3%. While unemployment fell to around 4.1%, underscoring tight labour market conditions that can sustain inflation pressures.

In its post-meeting statement, the RBA noted that private demand was rising faster than expected, capacity pressures were greater than previously assessed, and labour market conditions remained tight, leading the Board to judge that inflation would remain above target for some time without tighter policy.

For Australians, this means higher borrowing costs are likely to flow through to mortgage repayments, with some estimates suggesting an increase of roughly $80–$90 per month on a typical $600,000 loan if lenders pass on the hike, while savers may benefit from slightly better returns on deposits.

Homeowners are not the only group affected by the RBA’s decision, Australia’s M&A market is feeling the impact too, though in more subtle ways than the headlines suggest. A single rate rise doesn’t halt dealmaking, but higher interest costs do raise the cost of capital (minimum return a company must earn before generating value), particularly for highly leveraged transactions. This can slow private equity-led deals, tighten financing conditions and put modest downward pressure on valuations. Strategic buyers and well-capitalised corporates, however, often remain active because they are less reliant on cheap debt.

In practice, rate hikes tend to reshape how deals get done rather than stop them, with more conservative leverage, tighter financing terms and a sharper focus on resilient cash flows.

With rates driving the cost of capital, the RBA decision will quietly influence which Australian deals get done - and on what terms.

The ASX fell 1.8% for the week with most of the damage coming on Friday in the sharpest sell-off since Trump’s ‘Liberation Day’ in April last year. Investor concerns around stretched valuations triggered a 2% drop late on Friday, wiping around $65bn from the share market. While significant, the drop was less than April’s plunge where the market endured a 4.2% drop and nearly $110bn erased from Australian shares.

This time it wasn’t Trump nor was it the RBA’s rate decision earlier in the week, this sell-off was concentrated in the themes that dominated 2025, with AI, crypto and precious metals all sharing in the losses on Friday.

Despite some resilience in the markets this week, Friday’s sell-off marked a clear shift in sentiment, with markets beginning to reprice risk as global uncertainty, inflation and US fiscal concern collectively continue to weigh on investors.

ASX Movers by the Numbers:

The week’s best performers on the ASX 200 include:

In contrast, the worst performers on the ASX 200:

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