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.
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