Rising market discount rates
The conflict in the Middle East has triggered a global oil price surge, with higher energy and shipping costs reflecting a supply shock that has pushed headline inflation forecasts higher than anticipated. With market conditions continuing to evolve rapidly, we have provided an update on our assessment of discount rates as at 31 March 2026.
The ASX200 ended the month of March 2026 lower than 31 December 2025. The equity market movement is consistent with an increase in the 10-year Commonwealth government bond yield as the market prices stickier inflation and higher interest rates. No material changes in the equity market risk premium (EMRP) for Australia have been observed. As a result, we have maintained our assessment of the EMRP at 4.75% as at 31 March 2026.The impact of these changes on overall market discount rates is presented below.
Source: Leadenhall
“The labour market has tightened a little recently, rather than being stable as we’d expected, and underlying inflation remains high … This is before considering what higher energy prices arising from the conflict in the Middle east could mean for our economy.”
With an increase in government bond yields and minimal movements in other discount rate components, overall market discount rates are now higher compared to December 2025.
While markets reflect some tightening of financial conditions from the sudden reduction in supply of oil and natural gas, a longer lasting conflict in the Middle East is likely to lead to a greater risk of material repricing of assets. Companies should consider the impact the change in discount rates will have on their valuations, whether on their investment decisions or for impairment testing.
For further information on selecting an appropriate discount rate for your company please feel free to call us.
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