COST OF LIVING pressures are creeping in, with more to come.
I’ve lost track of how many politicians have promised to “ease the squeeze”, but with an election early next year it’s probably getting dusted off.
So far the official data is not fully reflecting this, although food and fuel prices should see another healthy headline inflation number for Q3 when released in late October.
All this has happened with subdued demand.
As mentioned many times over the past 18 months this has been — and remains for now — supply led.
However talk of transitory is misleading — unless three years is now considered transitory.
When NSW reopens shortly, high savings and incomes should see a surge in demand, pushing prices higher again.
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Supply will be slower to come back, partly mandated (eg restaurant dining numbers) and partly due to businesses having closed.
Good luck finding a restaurant booking in December. I would imagine proprietors take advantage of this with pricing. Who would blame them after the last 18 months ?
After a subdued September, due to a rare fall in risk assets, market inflation expectations are returning this month, once again nudging 2%. We expect to see 2.5% by year end.
Wagse remains the missing piece for medium-term inflation.
Everyone is reporting worker shortages but so far companies are looking to short-term measures to attract and keep staff — a sign-on bonus here, flexible conditions there.
However the dam wall of ten years of low wage growth is at risk of bursting.
I know if I worked in affected industries — from healthcare to construction to hospitality — I’d be taking advantage of a sellers (workers) market for labour. A recent increase in strike action suggests this realisation is dawning.
At risk of sounding like a broken record, higher inflation is not guaranteed, but insurance remains cheap.
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.
Find out more about Pendal’s fixed interest strategies here
About Pendal
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.
Where to next after the Reserve Bank kept rates on hold at its September meeting? Pendal’s head of cash strategies STEVE CAMPBELL explains
THE Reserve Bank left the cash rate unchanged at 3.6% at its September meeting.
No change was expected.
Market expectations for further easing were pared back following a stronger-than-expected monthly inflation data released prior to today’s meeting.
The monthly series showed annual headline inflation of 3% and trimmed mean at 2.6%.
Components of this number did cause some upward revisions to economists’ forecasts for the more comprehensive third-quarter inflation data due for release on October 29.
(For more details please refer to this article from our head of government bond strategies Tim Hext.)
Yields moved higher in the front end of the curve following the RBA’s decision.
In their statement the RBA noted that “private demand is recovering a little more rapidly than expected”, and the housing market is strengthening.
The market now has around a 40% chance priced in for a rate cut on Melbourne Cup day.
At the start of September it was priced as all but certain.
The RBA has scope to ease policy further – if required.
With 75 basis points of easing so far – and signs of life emerging from household consumption – the case is building for the RBA to remain on hold for the rest of 2025.
Inflation may come in a bit higher than expected in October, but it should not derail further easing.
The RBA seems comfortable with the end destination at the moment – it may just take a little longer to get there.
Should that occur, the meeting in early February would be the next opportunity.
If you’d like to hear more about how Pendal’s Income & Fixed Interest team is positioning for this environment, please contact us through your account manager by reply email.
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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.
Where to next after today’s Reserve Bank cash rate cut? Pendal’s head of cash strategies STEVE CAMPBELL explains
IN a unanimous decision at its meeting today, the Reserve Bank eased monetary policy by 25 basis points to 3.6%.
Similar to July, the market priced this cut as all but certain. This time there was no surprise.
The RBA also provided updated economic forecasts in its quarterly monetary statement. Some things change, some things stay the same.
That’s not surprising given its prior forecasts in May were set against heightened uncertainty from the tariff man.
The following table shows the RBA’s latest forecasts:
The big factors remaining unchanged are headline and trimmed mean inflation, as well as unemployment rate forecasts.
Changes to the growth forecast are particularly noticeable.
Growth is revised lower by 0.1% to 0.4%. These downward revisions aren’t a reflection of our trading partners – a modest revision lower over the next 12 months is followed by a pick-up from mid-2026.
One of the drivers in the lower growth forecast is a lack of productivity growth which affects supply in the economy.
In her press conference, Governor Michele Bullock pointed out that the RBA doesn’t forecast productivity growth.
Its forecasts for employment and inflation have been close to what’s been occurring.
Economic growth, however, has disappointed – which the RBA has reconciled by lowering productivity growth assumptions.
Weaker public demand growth and business investment also contributed to this weaker growth outlook. Offsetting this was a better outlook for household consumption and dwelling investment.
Where do the economy and rates go from here?
We don’t expect a follow-up cut at the RBA’s September meeting without a sharp deterioration in the global environment.
November remains more likely.
Quarterly inflation data remains key, with the next release due in late October. This is more comprehensive than the monthly inflation data series which prompted some concern and was a key catalyst for remaining on hold in July.
Also key is the labour market, with the quarterly Wage Price Index and monthly employment data due in the two days subsequent to this meeting.
There are mixed messages about the strength of the labour market.
The RBA’s business liaison shows that firms continue to report difficulties finding staff while unit labour costs continue to increase. In contrast, the RBA notes that the rate of job-switching has declined notably from its 2022 peak.
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Should the unemployment rate move higher quickly or should inflation come in under expectations, the RBA can respond.
Policy settings aren’t overly restrictive.
With 75 basis points of easing delivered to date, the RBA would be encouraged by a pick-up in household spending and see little pressing need to ease policy again quickly.
Overall, nothing today makes me change my view that we will get one more rate cut this year at the November meeting.
What happens beyond year’s end will be significantly impacted by global events, but markets will still price for one or two more cuts in 2026 for now.
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.
What can investors expect following the Reserve Bank’s cash rate surprise? Pendal’s head of cash strategies STEVE CAMPBELL explains
THE Reserve Bank of Australia (RBA) surprised the market today by leaving the cash rate unchanged at 3.85%.
The market had priced in more than a 90% probability that the RBA would ease policy. Expectations for a cut had been set higher at the RBA’s previous meeting in May, where the case for a 50-basis point cut had been discussed.
Throw into the mix the weak first quarter economic growth data (+0.2% for the quarter and +1.3% for the year) and the set of conditions were seen as being in place for the RBA to ease.
At today’s meeting, however, the vote was 6-3 in favour of no change.
In justifying the decision not to move, the RBA noted that the monthly inflation was, at the margin, slightly stronger than expected and that 50 basis points in cuts have already been delivered.
This is buying the central bank time, with the Board noting it had “judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis.”
The information that the RBA needs will come via second quarter inflation data to be released in late July.
On economic growth, despite the weak first quarter result, the RBA does see some cause for optimism.
Domestic demand picking up over the past six months, along with a rise in real household incomes, were cited. The labour market also remains tight.
Uncertainty around inflation and growth, however, remains elevated due largely to US trade policies that remain unresolved.
The RBA sees monetary policy settings as being well positioned to deal with the fall-out should economic growth deteriorate sharply or should inflation fall more quickly.
Leading into today’s decision, the market had priced the cash rate ending the year just above 3%. That has moved closer to 3.25%.
For August, it is priced that the RBA is more likely than not to cut policy. But as today’s decision shows, the market doesn’t always get it right.
At her previous press conference, RBA Governor Bullock was somewhat dismissive of the monthly inflation data series. Today that data series gave the RBA enough to remain on hold.
The quarterly data series still reigns supreme and all eyes will be on 30 July when it is released. If it comes in line with expectations, then it is likely that the RBA eases policy in August.
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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.
Here’s what the latest monetary policy adjustments mean for investors, according to Pendal’s head of cash strategies STEVE CAMPBELL
THE Reserve Bank of Australia eased monetary policy for a second time this year, cutting the cash rate again by 25 basis points to 3.85%.
Monetary policy settings do remain in restrictive territory.
The market had flirted with the prospect of a 50-point cut after the turmoil that ensued from Donald Trump’s Liberation Day tariffs announced in early April.
This was pared back following a 90-day pause in tariffs and a plethora of other headlines which saw a diminished case for a bigger cut.
The RBA remains attuned to the risks to global economic growth and inflation.
Its statement noted that “the Board considered a severe downside scenario” and that “monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia”.
Accompanying today’s decision was the RBA’s latest set of forecasts through its Statement on Monetary Policy, as shown in the table below.
The RBA has revised its trimmed-mean inflation forecast lower by 0.1% across the forecast horizon.
(The trimmed-mean measure removes the most extreme price movements, providing a more reliable indicator of the underlying trend in inflation.)
The most recent annual trimmed-mean rate of 2.9% fell within the target band for the first time since 2021. The inflation outlook is more supportive for further policy easing if required.
Real household income in the nearer term has been revised higher, by 0.2% to 3.3% for the year ending June and by 0.1% to 2.6% for 2025.
The labour market, based on what the RBA is looking at, remains tight and employment continues to grow.
Today’s statement conveyed a sense that domestically the RBA remains comfortable with the inflation outlook and where policy settings are at. The upside risks to inflation have been diminishing further.
As with all central banks currently, uncertainty over US trade policy and the ramifications from that reign supreme.
However, the RBA is well positioned to ease more aggressively should the economy require stimulus.
There are signs the rate cut earlier this year is helping households, though the majority of the cut is being saved – not spent.
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A fall in petrol prices to their lowest level post-Covid is also assisting. Wages growth is finally exceeding the cost of living.
We maintain the view that two more cuts are forthcoming, likely around the quarterly cycle in August and November.
For investors, bonds continue to offer good defensive value in this environment.
And in the meantime, international events will still keep things lively and any uncertainty will see plenty of opportunity for active managers.
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.
In this video profile Pendal’s head of cash strategies Steve Campbell explains how the team’s approach to managing cash puts us in a market sweet spot
AS a “safe-haven” asset, cash can be the best-performing asset class when markets come under pressure.
But liquidity in cash is key, says head of cash strategies Steve Campbell, who likens it to “the Steven Bradbury of asset classes”.
“It’s the best-performing asset when others come under stress – and we’ve seen that over the past ten years through various experiences, like Covid,” he says. “But the main thing with cash portfolios is our investors need to know that when they want their money back, that they’re able to access it.”
In this video, Steve – who has more than 25 years of experience in cash and dealing roles – explains how he structures portfolios for Pendal’s broad client base in a way that aims to balance risk and return.
“I will never compromise a slightly higher return by trading that off against liquidity, where I might not be able to get my money back to the client,” he says.
Portfolio decisions are supported by a broader team dynamic which promotes a cross-pollination of ideas and “a better understanding of the risks before you implement portfolio decisions”.
Pendal’s size is one of its strengths, he adds. “One of the advantages that we have is we’re in the ideal sweet spot in the Australian market … Our size is big enough that we’re important, but also small enough that it means our investors are getting the best result at the end of the day.”
Watch the video to learn more about Steve and Pendal’s active approach to cash investing.
Get to know the rest of the team better in these individual profile videos:
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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.
While policy remains in restrictive territory for the RBA, today’s rate cut is unlikely to be a one-and-done affair. Pendal’s Head of Cash Strategies STEVE CAMPBELL explains
AT its meeting this week, the Reserve Bank of Australia eased monetary policy by 25 basis points – taking the cash rate to 4.1%.
The move came with little surprise — the market had priced in an 80% chance of a cut.
This followed the RBA’s comment in December that it was “gaining some confidence that inflation is moving sustainably towards target”.
The central bank also saw an easing in wage pressure and upside risks to inflation — a view supported by fourth-quarter inflation data released in late January, showing annual trimmed mean inflation of 3.2% for 2024.
In its November monetary policy statement the RBA had forecast annual trimmed mean inflation to hit 3.4% by the end of 2024. The weaker inflation result was enough for the central bank to remove some of the monetary policy restrictiveness.
Policy does, however, remain in restrictive territory.
Strong labour data
While the RBA may have breathed a sigh of relief following the inflation figures, the same cannot be said of recent labour market data.
The RBA had forecast the unemployment rate ending the year at 4.3%; it ended at 4%. Meanwhile, the participation rate of 67.1% is a record high.
For those looking for no change this month, the labour market and lack of productivity were cited as key reasons for the RBA to remain on hold.
At its meeting today, the Board revised down materially where it sees the non-accelerating inflation rate of unemployment (or the NAIRU) from 4.5% to 4.2%.
Where to from here?
In this week’s statement, the RBA said: “The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range.
“In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook.”
As is the case now for all February, May, August and November meetings, the RBA’s decision also coincides with the release of updated economic forecasts though the Statement on Monetary Policy.
The following table shows the RBA’s forecasts released this week:
Some of the key forecast revisions to note:
- Trimmed mean inflation has been revised lower by 0.3% to June 2025 and 0.1% for 2025.
- The unemployment rate has been revised lower by between 0.2% and 0.3%.
- Wage inflation was revised up by 0.2% to 3.4% for 2025.
Where does this leave the RBA?
It is highly unlikely that it is a case of one cut and they’re done – so the focus will now move to when the next policy easing will occur.
The next meeting in April marks the first for the new Board structure, which separates it into a monetary board and a governance board, and comes into effect from the start of next month.
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Prior to its next decision on 1 April, the key domestic data will include wage price index data (due 19 February) and two labour market reports that will be key in determining whether the RBA goes back-to-back.
Even if it doesn’t cut in April, it is unlikely to be a one and done. Further policy easing could occur towards the middle of the year.
Leading into today’s announcement, the market had priced in at least three cuts for 2025. There had also been plenty of talk leading up to today about a hawkish cut – the RBA delivered that.
The RBA also didn’t give anything away; forecasting trimmed mean inflation at 2.7% until mid-2027 means we really don’t know how it will all unfold.
Any further policy easing in the second half of the year will depend on how inflation evolves. The RBA remain cautious and data dependent.
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.
Anyone looking at policy easing in the near term will be left disappointed, says head of cash strategies STEVE CAMPBELL
THERE was no change from the Reserve Bank of Australia at its November meeting, with the cash rate left unchanged at 4.35%.
No surprises there – if only picking the winner of the Melbourne Cup was as easy.
Anyone looking at an easing of policy in the near term will be left disappointed.
Headline inflation fell sharply in the third quarter due to the effects of energy rebates and some state subsidies. The trimmed mean – one of the RBA’s preferred measures – stripped out these effects and showed annual inflation at 3.5%, in line with the RBA’s forecast.
We also got an updated set of economic forecasts via its Statement on Monetary policy (SoMP). These forecasts show the RBA not seeing “inflation returning sustainably to the midpoint of the target until 2026”.
Inflation is moving in the right direction but remains too high for the RBA to comfortably entertain the idea of policy easing anytime soon.
As has been the case for a while, the level of uncertainty remains high.
Looking at household consumption, its contribution to economic growth has been poor recently due to falling real incomes.
The RBA does expect this to turn, however, with household disposable incomes forecast to rise by 3.9% by the middle of next year.
The labour market also remains tight. The participation rate is at record-high levels and employment growth over the past quarter has been strong.
The RBA forecasts unemployment at 4.3% by the end of this year, before rising to 4.5% by the end of 2025. That does not sound like easing anytime soon.
What about other central banks that have started easing policy – shouldn’t we be following suit?
The following graph shows policy rates over the past 20 years.
Australia and Norway are the last to the rate cut party. Japan doesn’t want to join the party at all after hiking in July, with the prospect of further tightening possible.
The RBA noted that other central banks have eased because they’ve become more confident that inflation is moving back towards their targets.
Expecting the RBA to follow suit in the near term is likely to lead to disappointment. The next move from the RBA will be a cut, but we don’t need to immediately follow the actions of others.
The period pre-GFC shows the US Federal Reserve and Bank of Canada easing against the RBA hiking – different circumstances, with the mining boom sucking up a lot of labour resource and driving wages higher.
Similarly, the period from mid-2016 had other central banks tightening and the RBA remaining on hold in an environment of tepid domestic inflation. The RBA didn’t tighten as early nor as aggressively as other central banks.
Policy is tight, but as the labour is showing it is not so tight that it is strangling the economy. And with disposable incomes likely picking up, the market timing of a first rate cut in May does not seem unreasonable
Find out about
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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.