RBA decision

RBA announcement

Key takeaways

The RBA decided to:

  • maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances of zero per cent
  • maintain the target of 10 basis points for the April 2024 Australian Government bond
  • continue to purchase government securities at the rate of $5 billion a week until early September and then $4 billion a week until at least mid November.

The market was surprised, with a “reversal” of last meetings’ decision to taper QE expected, given the resurgence of COVID and the lockdowns. The AUD rallied, yields lifted, and markets fell, consistent with the more “hawkish” stance.

The market had already been down on the back of weak leads offshore, and as such it was more about “not staging a rally” rather than exacerbating weakness.

The “throat clearing” around housing and housing lending standards continues. However, as we discuss in an earlier note, the recent peak of housing approvals data, and home lending data, is likely to reassure the RBA that things are not overheating. Note, “not overheating” to their mind; in our mind, both are overheated, and represent risks to the valuations of stocks in those sectors.

There is little to information to plumb in the sector wide reaction to the RBA decision. Mining had already been on the nose, with yesterday’s high profile 8% fall in the price of iron ore, and the ongoing acceleration of interventionist policy in China (which is doing all that they can, the kitchen sink and more, to control prices, and in the case of commodities, lower them).

Again of interest to us, is that many of these are gold miners, and points to the (in our mind) issue that gold is not an especially great hedge against rates, risk, or inflation.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.