‘No pre-set path’: What the RBA statement means for investors | Pendal Group
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‘No pre-set path’: What the RBA statement means for investors

Did this week’s RBA statement this week signal fewer rate hikes ahead? Probably not, says Pendal’s head of government bond strategies TIM HEXT

THE RBA statement this week played a reasonably straight bat.

Who can blame them given all the criticism and the upcoming review? They seem less keen to take on the market.

But it’s also reasonable in a highly uncertain and complex world that you maintain maximum flexibility.

Anyone with a strong opinion on the economy at the moment is likely displaying misplaced bravado.

What we do know is rates are going to hit neutral this year. Another 1% of hikes can be expected, moving the cash rate to 2.85%.

Whether it’s four lots of 25bp across four meetings or 50bp at fewer meetings is only of interest to short-end traders.

Hence the RBA’s line that “the Board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path”.

Sounds like an opportunity for everyone to interpret this with their own confirmation bias — which on Tuesday seemed to be fewer hikes, not more.

I think that’s reading too much into it.

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Pendal’s Income and Fixed Interest funds

Much like the US Fed, the RBA will be keeping a close eye on overall monetary conditions.

As asset owners we must remember the “central bank put” is now also a “central bank call”.

That is, if bonds, equities and credit spreads rally too much without a significant easing in inflation pressures, they will lean against the easing of conditions.

The rally of the past month suggests this is in danger of happening — so expect more hawkish speeches from officials, especially in the US.

RBA officials will have time over summer to sit back and see the impact of hikes on the economy.

I suspect the hikes will not have a big impact yet — but will do so next year.

This is when 30% of total mortgages come off 2% fixed rates onto 5%-plus floating rates.

However, while goods price inflation will be falling, services inflation will be becoming more embedded in the economy, courtesy of labour shortages.

This will limit any further rallies in bonds.

They are not expensive, but recent rallies mean they are no longer cheap.

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About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

Find out more about Pendal’s fixed interest strategies here


About Pendal Group

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

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