October 2022 Credit Market Update

By Henry Walsh
26 Sep
The Australian interest rate market has moved substantially since the 2021/22 harvest. For the latter part of the 2021/22 crop year we absorbed this increased cost of funding to provide certainty and support for our customers. Given the changes we have announced for the upcoming harvest, we thought it worthwhile to recap the past 12-18 months in credit markets.
Interest Rate Markets

The below chart highlights the magnitude and speed of the change in the Australian interest rate markets. This increase in the BBSW follows the change in the RBA’s monetary policy as a consequence of persistent inflation domestically and overseas. 

RBA Cash Rate

This change in central bank policy has been reflected across the world and as a consequence, Australia’s funding market has experienced one of the swiftest changes in interest rates on record. This is most pronounced in the BBSW 1 month funding rate.

The Australian Bank Bill Swap Rate (BBSW 1mo)
Credit Spreads

In addition to moves in interest rates, credit spreads globally have also been rising after being subdued post the COVID19 spike. The chart below shows the credit spreads of the largest 25 companies in Australia. Even the largest companies in Australia have seen increased funding costs passed through to them over the past 12 months. 

Itraxx (IHS) Market 5-year Credit Spread of top 25 rated companies in Australia

In combination, this rapid change in credit markets has meant we have moved to a floating rate pricing structure, at competitive rates, whilst maintaining our flexibility and levels of service. We look forward to being a trusted partner in your business.

DISCLAIMER: Nothing in this note is intended to be financial advice and is for general information only.Any opinions or views described in this note do not represent those of AgriDigital or any other party.

Henry Walsh
Head of Finance