- An upside surprise from Q1 inflation along with more wage increase talk from its business liaison program forced the RBA’s hand at their May board meeting.
- Along with hiking rates for the first time in over a decade, the RBA is now setting a course to normalise monetary policy over the medium term to combat growing inflation pressures
- With the bulk of inflation pressures coming from the supply side, this tightening cycle will be fraught with danger as the RBA need to walk the fine line between taming inflation without tipping the economy over.
- The big question is, how high rates will go?
- Term Deposit and NCD rates have surged. Reference rates are the largest driving force along with banks searching for tenor.
- Credit spreads have placed further upward pressure on investment rates.
- Due to the rapid increase in rates, investments made over the past couple of months might seem ‘underwater’.
- Tenor is an important part of a portfolio and should not be discouraged in a volatile period.
- Absolute returns should be recognised.
- The economy is still experiencing increased inflation worries. Business and consumer confidence are reflecting this.
- The war in Ukraine, China covid lockdowns and recent flood events will continue to disrupt supply chains and will place further pressure on inflation prints.
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