What happened
The Reserve Bank of Australia board meets on September 28 and 29 to decide the cash rate target, currently sitting at 4.35 per cent. Following recent upside inflation risks and July CPI rising to 3.5 per cent, Commonwealth Bank and other major lenders brought forward their forecasts for a 25 basis point rate increase. RBA leadership signalled that inflation risks are materialising.
Why it matters here
Another rate hike will directly increase variable mortgage repayments and lift borrowing costs across the economy. Higher cash rates compress valuation multiples for growth assets while making defensive income yields like cash and short-dated paper relatively more attractive. Portfolio managers should reassess gearing and interest coverage across listed equity holdings.
What to watch
The RBA Monetary Policy Board decision and rate announcement on Tuesday, 29 September.
Source
commbank.com.au