May 2026 edition

Market Observations

The Reserve Bank of Australia is due to meet on this week with a cash rate decision made at 2:30pm on May 5th with markets pricing in a 25bp increase to the cash rate, with the focus to anchor inflation expectations.

Australia already has the highest cash rates in the G10, with many calling the rate cutting cycle in 2025 unnecessary which is now resulting in a sew saw of rate cuts-hike cycles.

Recent geopolitical developments and ongoing energy price volatility continue to influence the lending environment, with higher fuel costs and supply chain pressures beginning to flow through to inflation expectations and business conditions locally. In response, major lenders are increasing credit provisions as a precautionary buffer while also supporting targeted assistance programs for affected sectors, all of which are early signals that banks are positioning for a more cautious phase of the cycle.

Another key date for May is the 12th, when the Federal Budget will be delivered. One of the key topics will include tax reform, in particular potential changes to negative gearing and CGT.

1. RBA to raise interest rates this week

Recent CPI data confirmed headline inflation rising to 4.6% year-on-year (1.4% for the quarter), the highest level since September 2023, largely driven by the sharp increase in fuel prices following recent geopolitical developments. Encouragingly, the trimmed mean measure (which is actually the RBA’s preferred gauge of underlying inflation) came in slightly softer than expected at 0.8% for the quarter, suggesting broader price pressures have not yet fully flowed through the economy.

While the immediate impact has been concentrated in fuel, rising construction costs and rents continue to keep inflation elevated, and business and consumer surveys suggest price pressures may broaden in the months ahead.

Markets are currently expecting a 25bp increase at the 4–5 May RBA meeting, with policymakers focused on keeping inflation expectations under control while monitoring the impact of higher energy costs on economic growth.

2. Fixed rates have been back in conversation but is there room to move?

Expectations are not building steadily in one direction. They are reacting abruptly to incoming information, particularly global developments and inflation-sensitive data.

They are reacting sharply to this incoming data and geopolitical risk.

A single shift in

• Oil supply
• U.S. inflation
• Geopolitical escalation
• Global bond yields

… can materially alter rate expectations within days.

This matters because fixed-rate pricing responds to these moves immediately, often well before households feel anything through official cash rate changes.

2.1 Why Geopolitics Matters for Australian Fixed Rates

The recent volatility flows directly into swap rates and therefore fixed mortgage pricing.

Recent reporting in The Australian Financial Review and news.com has highlighted a growing concern: if conflict in the Middle East disrupts oil supply chains or constrains production, global inflation could reaccelerate just as central banks believe they have regained control.

For Australia, that means

• Higher fuel prices
• Transport cost increases
• Upstream cost pressure
• Sticky services inflation

This has played out.

The RBA does not operate in isolation. It operates within a global financial system where bond markets often move first, and central banks respond later.

Bond markets reprice before the RBA moves and fixed rates reprice before bond markets settle.

That sequencing is critical.

At March's AFR Business Summit, RBA Governor, Michelle Bullock said

While it was “quite easy to look through a supply shock” like an oil price jump, persistent inflation would make that more difficult.

Inflation is now hovering above the target band persistently, something to consider.

2.2 Why Fixed Rates Move Before the RBA

The Bank Bill Swap Rate (BBSW) is a key short-term wholesale benchmark used to price:

• Fixed home loans
• Commercial lending
• Derivatives
• Floating-rate instruments

When swap rates lift, lenders’ funding and hedging costs rise accordingly.

Over recent sessions, swap rates have moved meaningfully higher and lenders do not wait for the RBA to confirm a policy change before adjusting fixed-rate pricing. Instead, they price forward expectations and funding costs in real time.

Fixed rates typically rise when

• Funding costs increase
• Hedging costs climb
• Bond yields rise
• Inflation risk premiums expand

Which means fixed-rate repricing can occur even if the RBA ultimately holds steady.

In other words, the market doesn’t need the RBA to move for borrowers to feel an impact.

All majors have increased rates in the last month, but could the latest inflation print mean there is more room to move?

2.3 Rate Lock: Insurance, Not a Bet

A rate lock is not a prediction tool and should not be used his way. It is a risk management measure used for certain or in volatile markets. It acts as short-term insurance against fixed-rate repricing between application and settlement.

How Rate Lock Works

• 1. A one-off fee is paid to secure the current fixed interest rate from the time of application until settlement (typically up to ~90 days).
• 2. The fee is usually added to the loan.
• 3. It is disclosed clearly in your loan offer and contract.

If fixed rates rise before settlement, you are protected. If fixed rates fall, the lower rate applies.

In essence, it insures you against upward repricing while preserving downside benefit.

It’s not free, but in the right environment, particularly when swap rates are moving sharply, it can be materially valuable relative to the risk being managed.

3. Banks step in with targeted support measures for affected sectors.

Alongside recent increases in credit provisioning in response to geopolitical uncertainty, rising fuel costs, and softer economic conditions, Australian banks are supporting the rollout of zero-interest lending under the Federal Government’s $1 billion Economic Resilience Program.

The program is designed to assist businesses with turnover below $100 million seeking loans of up to $5 million, particularly those operating in sectors most exposed to recent cost shocks.

(program details: https://www.nrf.gov.au/).

Importantly, initiatives like this tend to emerge at the same stage of the cycle as higher impairment provisioning: not because credit conditions have deteriorated materially, but because lenders are positioning early for potential pressure across parts of the economy.

For advisers, this reinforces several broader signals already visible in recent updates from Westpac and National Australia Bank:

• banks are preparing for a period of greater earnings volatility across business sectors
• cost pressures linked to fuel, supply chains and energy remain a key watchpoint
• support mechanisms are being introduced proactively rather than reactively
• lending policy settings may gradually become more selective at the margins

While these measures are targeted primarily at operating businesses, they provide a useful read-through for advisers supporting self employed clients.

Case Study | Finance Showcase

We used portfolio strength to refinance a prestige build mid-construction.

Introduced by a HNW Wealth Manager, client, this transaction involved funding the construction of a dream family home just north of Dural, NSW.

The client had recently sold their business and invested into managed funds, shares and fixed income assets, holding approximately $20m in FUM. With the client's royalty and trading income having ceased, their profile relied primarily on investment income and portfolio returns, with no other employment income or property holdings.

Midway through the build, significant variation costs required the facility to be refinanced (12 months into the project). The clients also preferred not to engage a Quantity Surveyor given the additional cost.

Our approach

We worked closely with the clients and their personal accountant to structure a solution aligned with their broader retirement objectives:

• Worked closely with the client’s Wealth Manager to assess liquidity and earnings sustainability.
• Structured the file with a major Private Bank, leveraging liquid assets to address servicing shortfall.
• Secured a QS waiver despite the construction project exceeding $3m.
• Structured approval using one year of income history supported by forward investment projections.

Outcome

A seamless refinance + increase during construction, preservation of liquidity, and a structure that positions the clients to leverage their balance sheet for future investment opportunities.

Strategic balance sheet thinking, beyond traditional income verification.

Rate Card

A practical reference point for client conversations.

Each edition of Perspectives includes a snapshot of current bank pricing, RBA positioning, and BBSW movements to support the discussions you’re having with clients in real time.

For many High-Net-Worth clients, lending decisions are rarely driven by headline rates alone. However, understanding where pricing is moving across the market can help frame conversations around timing, structure, liquidity strategy, and asset positioning.

In practice, we’re seeing advisers use this information to

• sense-check whether existing lending remains competitive
• support conversations around refinancing or restructuring opportunities
• frame expectations ahead of acquisition decisions
• interpret the direction of funding costs beyond media commentary
• provide context around fixed-rate strategy and floating-rate exposure

Importantly, shifts in BBSW and wholesale funding costs often influence pricing before changes appear in standard variable rates. Having visibility across these movements can help you stay ahead of the curve when advising clients

Team Insights

It's quickly heading into that time of year again... EOFY.

As such, we are sharing some strategies our HNW clients and Partners are using with out help to maximise tax strategies.

1. Prepaying up to 12 months’ interest before 30 June.

This is still one of the clearest EOFY lending strategies where the borrowing is genuinely for income-producing investments. The general idea is to fix and prepay up to 12 months of interest before 30 June so the deduction may fall into the current tax year, rather than the next one. The ATO’s prepaid-expense guidance says an immediate deduction can be available where the 12-month rule applies, and prepaid interest on investment loans / margin loans are a live EOFY planning tool.

2. Capital-protected / limited-recourse strategies for clients with gains, high PAYG, or concentrated liquidity events.

This is particularly handy where it is explicitly framed for investors who want leveraged market exposure and, in particular, for clients with high PAYG income or a capital gain event who are seeking tax optimisation. The structures can use a mix of:

• A limited recourse loan, typically with an upfront prepaid interest outlay, which cost is potentially deductible under the ATO’s capital protected borrowing rules.
• A non-recourse loan with the same benefits.
• Terms can range from 12–48 month and receipt of ordinary dividends and franking credits during the term (in case of shares)
• We have used this strategy for clients who hold cryptocurrency who did not know they can borrow on this asset class.

3. Reviewing tax debt obligations, which is becoming more expensive to carry.

From 1 July 2025, interest charged by the Australian Taxation Office on unpaid tax liabilities (including GIC and SIC) is no longer tax deductible, increasing the effective cost of holding ATO debt for individuals and businesses alike.

Historically, these interest charges could be claimed where the underlying tax related to income-producing activity. With deductibility now removed, carrying tax debt has become materially less efficient from a balance-sheet perspective, particularly given ATO interest rates currently sit above many secured lending alternatives and compound daily.

As a result, we are seeing more clients explore refinancing ATO liabilities into structured business or investment facilities, where interest may remain deductible depending on the purpose of the borrowing and the client’s structure. This can improve cash-flow efficiency while aligning the debt more appropriately with the underlying activity that generated the liability.

For advisers, this period often represents an opportunity to engage early where clients are considering bringing forward deductions, preserving market exposure, or repositioning balance sheets ahead of 30 June, particularly as lending structures can take time to implement.