The Australian bond market is being caught in a tug-of-war. On one side, global inflation anxiety is dragging interest rates upward. On the other, a softening local economy and a budget-induced property downturn is pulling them right back down.
If the economy stalls while inflation remains high, Australia risks sliding into stagflation. It is a nightmare scenario for the Reserve Bank, leaving policymakers with few options to relieve the pressure on struggling households and businesses.
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