The Reserve Bank of Australia's rate hike cycle is once again stirring waves. HSBC recently put forward a core judgment—don't rush to raise interest rates in February; wait until the third quarter. What's the logic behind this?

HSBC Chief Economist Paul Bloxham bluntly states: raising rates now would be very painful. Why? Inflation pressures seem fierce, but the real root cause isn't how hot the economy is, but on the supply side. Australia's productivity has long been weak, and with government spending continuously expanding, these two forces stacking up have caused the economy to hit capacity constraints prematurely. Data speaks: by Q3 2025, capacity utilization has surged to 83.6%, a 18-month high, approaching the critical threshold where "going faster would overheat."

What’s the problem? Data from the Commonwealth Bank of Australia shows that the potential economic growth rate is only around 2.1%. The non-market sectors are expanding, but mining productivity is declining. These two forces offset each other, and growth momentum is actually loosening. The benefits of AI and net-zero transition haven't fully materialized yet.

The reality is quite awkward: inflation definitely exists. Since July, the CPI has exceeded the RBA's 2%-3% target range for five consecutive months, reaching 3.8% in October. But at the same time, signals of economic growth are also weakening—December's composite PMI dropped to 51.1, a seven-month low, and the leading economic activity index is also declining.

This combination of "high inflation + weak growth" puts policymakers at a crossroads. Raising interest rates would hit already fragile growth, while not raising rates would let inflation continue to cause trouble. This is the current true picture of Australia.