What moved
The Reserve Bank raised the cash rate a quarter point to 4.6 per cent on 29 September, the fourth rise this year and the highest since October 2011. Inflation has sat above the 2 to 3 per cent band since August, with prices up 3.5 per cent in the year to July. The ten-year government bond yields 5.38 per cent. Governor Bullock attributed part of the pressure to the Middle East conflict: it “has made people poorer”.
Why it matters for pricing
The cost side is the familiar half. New and renewing AUD facilities price off a higher curve, floating legs have moved, and cash pool debit rates reprice continuously. A fixed-rate loan priced correctly in 2021 stays arm’s length for its term; nothing needs restating there.
The Australian half is where the money is. Since income years beginning on or after 1 July 2023, the default fixed ratio test caps net debt deductions at 30 per cent of tax EBITDA. Rates do not appear in that formula. The allowance is fixed in earnings terms while the expense it covers rises with every repricing.
The squeeze runs both ways. Rates are up four times since February, while housing demand falls, sentiment is weak, productivity is flat and the treasurer has warned of difficult months. Interest rises into a cap that shrinks with earnings.
Which test a group elected matters more than the rate it negotiated. Under the fixed ratio test, denied amounts carry forward fifteen years — painful timing, but recoverable. Under the group ratio or third-party debt tests, nothing carries forward: the denial is permanent. The old arm’s length debt test, which flexed with the borrower’s facts, is gone.
An arm’s length rate is necessary and no longer sufficient. Price a rising market properly and you produce a higher defensible rate — and a larger denial. Pricing and capacity are no longer separate exercises in Australia. They must be modelled together, before the facility is signed.
Our call. AUD denials climb through 2027 as repricing meets flat earnings, concentrating in groups on the group ratio or third-party debt tests, where nothing carries forward.
What this means for your business
- Model the cap before you price. Run the facility through the 30 per cent test at the rate you intend to charge. If it breaches, pricing and capacity are one conversation.
- Revisit the election. It was made on a different rate curve and earnings forecast, and two of the three tests have no carry-forward to soften a wrong call.
- Check what reprices automatically. Floating legs and cash pool debit rates move without a decision, and consume the allowance first.
- Bring in the specialist early. Pricing AUD debt means solving the rate and the cap together. That is the work we do.
Sources
Reserve Bank of Australia, monetary policy statement, 29 September 2026. Australian Bureau of Statistics, consumer price index to July 2026. Thin capitalisation: Treasury Laws Amendment (Making Multinationals Pay Their Fair Share) Act, applying to income years commencing on or after 1 July 2023, per PwC Australia analysis. Bond yield and market commentary per Financial Times, 29 September 2026; no FT text reproduced. Figures as at 29 September 2026.