Pressure from persistent inflation could see steeper increases than expected
Global asset manager Janus Henderson has cautioned that the Reserve Bank of Australia (RBA) may tighten policy more forcefully than current market pricing suggests, with implications for funding costs across the mortgage sector.
The RBA began its latest tightening phase in February, lifting the cash rate by 25 basis points to 3.85%, a move that has already led money markets to price in additional rises over the coming year.
Recent data show that headline consumer price inflation is holding at 3.8%, while the trimmed mean measure has edged up to 3.4%. These readings underscore the central bank’s concern that underlying price pressures remain persistent and could warrant further action.
“The RBA remain highly data dependent, and the advent of Middle East tensions at month end are likely to increase policy path uncertainty,” said Emma Lawson (pictured right), fixed interest strategist at Janus Henderson. “The domestic economy shows signs of general resilience, but the global backdrop has the potential for disruption.”
Janus Henderson’s base case is that the RBA will deliver more rate increases from here, extending the current cycle. In this scenario, the cash rate path would be steeper than implied by market expectations if inflation does not ease as anticipated.
In its recent Australian economic view report, The firm also outlines a higher inflation scenario in which price growth stays elevated. Under that outcome, the RBA could be pushed into further tightening through to 2027, increasing borrowing costs for banks and, in turn, mortgage borrowers. By contrast, a lower case assumes a softer domestic economy, shaped by renewed global risks and a weakening labour market, which could limit the need for additional hikes.
“We hold no tilt at present,” Lawson said. “We hold a small long duration position, targeted on the curve, and remain vigilant to take advantage of market mispricing.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
