The Rate Story

The Reserve Bank raised the cash rate from 3.85% to 4.10% on 17 March — its second consecutive increase this year. The decision was close: four of the nine board members wanted to hold, which tells you something important. This is not a straightforward call, even for the experts charged with making it.

The RBA’s reasoning is that inflation picked up in the second half of 2025, the economy grew more strongly than expected, and the conflict in the Middle East has pushed fuel prices higher. The difficult part is that the same oil price surge driving inflation up is also squeezing household budgets.

Some economists expect a further rise in May. Others believe the impact of recent increases will slow spending enough to bring inflation back without further action. Either way, the RBA has made clear it will watch the data closely and will not act on autopilot.

What It Means for Investors

Higher interest rates do two things to investment markets. They increase the cost of debt for companies and households, which can reduce earnings and spending. And they make cash and fixed-income investments more attractive relative to shares, which can pull money out of equity markets.

This is the straightforward explanation for much of what we are seeing in the ASX right now. It is not a sign that Australian companies are in trouble — it is a market recalibrating in response to changed interest rate expectations. Australia’s economy is still growing. Employment is strong. Corporate balance sheets are not in the kind of distress we saw during the GFC or the early months of COVID.

The discomfort of watching balances fall is real. But it is also a normal feature of investing over a long period. Markets have recovered from every significant downturn in living memory, including ones that looked far more serious than this. Our tax-smart investing and portfolio management approach is built to navigate exactly these conditions.

The CGT Question

A Senate inquiry released its findings on the capital gains tax discount last week, recommending reform — particularly for investment property. The Treasurer has not ruled out changes in the May Budget.

If reforms do proceed, the most likely design involves grandfathering: existing investments would keep the current rules, and new rules would apply only to assets purchased after a certain date. Shares and managed funds appear out of scope entirely.

If you own investment property or are thinking about purchasing one, it is worth having a conversation with your adviser before May — not because you need to act in a hurry, but because understanding what might change is far better than reading a headline and making a hasty decision.

Key Developments at a Glance

• 1
  RBA raises cash rate to 4.10% — second rise in a row

  The 17 March decision was a close 5–4 vote, citing inflation and rising energy costs. A $600,000 variable rate mortgage now costs around $91 more per month.

• 2
  Payday super becomes law from 1 July 2026

  Employers must pay super at the same time as wages, replacing the quarterly cycle. Workers can check their balance after every pay run and act quickly if something looks wrong.

• 3
  Senate recommends cutting CGT discount on investment property

  The most likely design would grandfather existing properties. Shares and managed funds appear out of scope. The May Budget is the decision point.

• 4
  ASX falls 8% in March — third consecutive week of declines

  Driven by Middle East tensions, rising energy prices, and the rate decision. Australia’s economy continues to grow and employment remains strong. Historically, these falls have been temporary.

• 5
  Australia and the EU are close to a free trade deal

  European Commission President Ursula von der Leyen visits Australia 23–25 March to finalise the agreement, opening the EU’s 450-million-person market to Australian exporters.

Our Approach

At times like this, the most important thing is to separate noise from signal. The noise is the daily movement in markets, the changing rate expectations, and the speculation about what the Budget might contain. The signal is your long-term strategy, your time horizon, and your actual financial position.

Sound financial advice is not built around predicting what markets will do next month. It is built around identifying what you need your money to do over the next decade, and constructing a plan that can survive uncertainty — including Australia’s current interest rate rise cycle. Get in touch with your HFI adviser to review your position.