Interest rate debate focused on wrong risk: Datt Capital

Binaya Dahal

Journalist

18 May 2026

Datt Capital’s Emanuel Datt has stressed investors are focusing on the wrong risk on interest rates, saying the key issue is not whether the Reserve Bank of Australia would lift rates again but how long the current elevated settings will remain in place.

Datt, chief investment officer at the Melbourne-based fund manager, said the RBA’s decision to raise borrowing costs at each of its past three meetings, combined with market expectations of further tightening, meant attention should shift away from the peak in rate toward the duration of restrictive settings.

“Whether the RBA hikes again is not the primary investment question,” Datt said. The more important question is duration: how long does the cash rate stay at or above 4.35 per cent?”

He noted the cash rate has now returned to the levels of late 2011 but said the comparison would be misleading because the policy cycle at that time was moving toward easing phase.

“In 2011, the RBA was in an easing cycle, moving rates lower and giving households and businesses a credible forward expectation of relief,” Datt said. “In 2026, the direction is reversed, with market pricing pointing toward 4.7 per cent by year end and no cuts anticipated until 2028.”

“Businesses and households are not pricing in relief. They are stress-testing against the possibility of more restriction.”

Datt added the impact of higher rates is being intensified by rising nominal debt loads, driven by significant property price growth over the past 15 years despite similar headline interest rate levels.

Housing costs increased 6.5% year-on-year to March 2026, while the electricity prices jumped 25% as government rebates rolled off and broader inflation pressures persisted.

Roy Morgan modelling suggests mortgage stress could affect 1.6 million Australians, or about 30% of borrowers, following the latest rate hike.

“This is not a brief tightening correction but a prolonged period of restrictive policy operating against a structurally constrained economy,” Datt said.

Against this backdrop, he said investors should distinguish between businesses able to withstand a sustained high-interest rate environment and those dependent on cheap credit or strong discretionary spending.

“Businesses best positioned share common traits: low debt relative to earnings, high interest cover ratios, and pricing power that allows them to pass through input costs without losing volume,” Datt said.

“Energy producers and gold-linked businesses benefit directly from the inflationary conditions driving rates higher. Defensive industrials and essential services with contracted revenue streams also carry structural insulation.”

However, he warned against investing in highly geared companies exposed to refinancing risk, as well as consumer discretionary businesses facing sustained household spending compression.