Inflation hasn’t settled yet – which means interest rate risk is still part of the outlook for businesses.
Australia’s annual inflation rate was 3.8% in January, and it has sat above the Reserve Bank of Australia’s (RBA) 2–3% target range since August 2025.
In its February Statement on Monetary Policy, the RBA said underlying inflation was “substantially higher than expected” compared with its outlook in August last year.
The central bank also noted that economic growth had been stronger than expected, meaning the economy may be running hotter than previously thought.
Importantly, that analysis was released before the conflict in the Middle East disrupted global supply chains. Since then, inflation pressures have likely increased, although the broader economy may also have weakened.
How inflation feeds into borrowing costs
Inflation is a key driver of interest rate decisions and lender funding costs.
When inflation stays elevated:
- Rate expectations tend to rise.
- Lenders may reprice loans more quickly.
- Borrowing costs can remain volatile.
For SMEs, this is a reminder to review loan structures, buffers and repayment flexibility.
Inflation trends will continue to shape interest rates, borrowing costs and lender policies over the months ahead.
Businesses planning new borrowing or refinancing this year may benefit from reviewing their finance strategy early. I’m happy to walk you through what lenders are currently offering.
