Adam Bowe, Executive Vice President and Head of Australia Portfolio Management at PIMCO, has commented today on the rates decision today from the Reserve Bank of Australia:
What happened
- The RBA left the policy rate unchanged at 3.60%, which was fully expected by the market.
- The recent growth and inflation data has shown a cyclical uptick which has seen the RBA pause its easing cycle. This has seen the market pivot sharply from pricing a rate cut, to almost two hikes in 2026.
What does it mean
- PIMCO believes monetary policy remains restrictive which will weigh on growth and inflation over the next year.
- When the cash rate was at its recent peak of 4.35%, just 0.75% higher versus now, Australia experienced a two year per capita recession. And at today’s cash rate of 3.60% the percentage of household income being dedicated to debt servicing and taxes is still close to as high as it has ever been.
What next
- While recent data has been firmer than expected, it’s premature to conclude that the easing cycle is over.
- Pauses are common features of RBA monetary policy cycles, both on the way up and the way down. As households and businesses remove expectations of lower interest rates from their spending plans for 2026 we expect the growth and inflation data to moderate.
- With the market pricing the cash rate back above 4% and yields on 10 year Australian Commonwealth Government Bonds reapproaching the highs of the past 15 years we think there is considerable value in Australian duration.
