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Steve Campbell: RBA likely to wait for April data before a move in May

The RBA is getting close to pausing, but another rate rise is probable in May, says Pendal’s head of cash strategies STEVE CAMPBELL

THE Reserve Bank lifted the cash rate for a tenth consecutive meeting today – up 0.25 percentage points to 3.6%.

“When and how much further interest rates need to increase” would depend on “developments in the global economy, trends in household spending and the outlook for inflation and the labour market”, the RBA said.

The next Australian labour market data is due on March 16.

Unless the data is exceptionally strong, it’s unlikely to be the sole catalyst for the RBA to move again in April.

The RBA made reference to recent wage inflation data which suggests a lower risk of a wages-prices spiral.

Pendal's head of cash strategies, Steve Campbell
Pendal’s head of cash strategies, Steve Campbell

The key data release that will determine the next move is first-quarter inflation, due for release on April 26.

This will be the RBA’s own version of two-up played a day earlier on Anzac Day.

At this stage a rate hike looks less likely in April, but probable in May.

The RBA is getting close to pausing, particularly with the large amount of fixed rate mortgages rolling off from mid-year.

Household balance sheets have withstood policy tightening to date reasonably well, drawing on accumulated reserves and benefitting from a tight labour market.

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The risk to the system though is the tail.

Many households that took out a mortgage in 2020 and 2021 have little or no buffer to fall back on.

The key factor here is the labour market.

The unemployment rate will rise as the participation rate increases with an influx of foreign workers.

It’s when the hiring turns to firing that true stress in the market from policy tightening will emerge. Already for some it’s been a case of heads I win, tails you lose.

About Steve Campbell and Pendal’s Income and Fixed Interest team

Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.

Find out more about  Pendal’s cash funds:

Short Term Income Securities Fund

Pendal Stable Cash Plus Fund

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

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at March 7, 2023. PFSL is the responsible entity and issuer of units in the Pendal Short Term Income Securities Fund (Fund) ARSN: 088 863 469. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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