Interest Rate Cycle & Portfolio Management
By Matthew Lemke, Portfolio Manager
February 2026
Overview
The Reserve Bank of Australia (RBA) hiked the cash rate by 0.25% to 3.85% on 3 February 2026 marking the first-rate hike since late-2023 and changing its tact from the rate cuts in 2025.
The RBA’s move is different to the monetary policy approach of the central banks of other western developed countries, such as the US where further rate cuts are expected from the Federal Reserve this year.
Inflationary pressures are being driven by a number of factors, including:
- Private demand growth
- Low unemployment
- Easier financial conditions
- Higher house costs
- Low productivity growth and;
- Greater capacity pressures in the economy.
The market is expecting another 0.25% hike at the RBA’s next meeting in May, and then only a small chance of a further hike beyond that. This would mean that this tightening cycle is very mild and may not even erase the three 0.25% rate cuts last year.
The RBA is expected to retain a “tightening bias” for some time with little prospect of a rate cut in the near term. This would mean that the 3-month BBSY rate, the major wholesale money market borrowing rate, could move from current 3.92% to 4.25% on the next rate hike, and stay there for some time.
The prospect of this outcome also means that the A$ should be very well supported against the US$ in foreign exchange markets. Any major appreciation of the A$ above US$0.70 will temper the degree of rate hikes as an appreciating A$ is deflationary (via falling import prices).
The scope of further RBA rate hikes will be very dependent on wage claims by unions, government expenditure (especially the Federal Budget to be delivered in May 2026), future CPI and employment releases by the ABS, and developments in the geopolitical sphere and international economic and market developments.
What This Means for Investors
Prime Value are working with all its portfolio managers to ensure our portfolios are well positioned to be protected from potential rising interest rate costs and eroding investor value. Our experience over many interest rate cycles has taught us to be pro-active and focus on quality tenants, cashflow and adding value to investor capital.
There should be no long-term impact in this current shortened interest rate cycle, and we are confident for the opportunities that are ahead.
Conclusion
Overall, the current tightening cycle is expected to remain relatively mild and is not anticipated to represent a broader inflection point for the economy, businesses or consumers, except in cases of elevated leverage. That said, ongoing vigilance is warranted given the number of factors influencing inflation and economic conditions. Inflation has also proven more persistent than historical patterns would suggest, underscoring the importance of maintaining a conservative, risk-aware approach to financial management, supported by a robust risk management framework.
Speak To Us, Today
To learn more about Prime Value – we encourage you to speak with our Investor Relations team who are available to assist:
T | (03) 9088 8088 E | info@primevalue.com.au
Important Disclaimer
This white paper has been prepared by Prime Value Asset Management Limited ACN 080 376 110 & AFSL No. 222055. The information provided in this white paper is general in nature and does not take into account your personal investment objectives, financial situation or needs. It has been prepared as a presentation aid only and is not intended to constitute investment advice or a personal securities recommendation.
This white paper is not a Product Disclosure Statement (PDS) or an offer of units and contains a brief overview of the investment only. It is not for general distribution or third-party reliance or use. While this presentation has been prepared from sources which Prime Value believes to be reliable, Prime Value cannot guarantee its accuracy or completeness and other than as required by law, Prime Value undertakes no obligation to advise of changes or updates to this presentation. Any prospective investor wishing to make an investment in the Prime Value Enhanced Income Fund (ARSN 605 114 323) must obtain and read the relevant PDS (particularly the risk factors discussed) and complete an application form.
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