RBA
The RBA hikes, by 25bps, continuing the recent run of a dovish (at the margin) stance, having dropped down to 25 from 50 at the last meeting.
The RBA is simply aware that there’s a lot of tightening already in train, and that Australian households, whilst showing good resilience at the moment, are nonetheless quite indebted, and with house prices falling, doesn’t want to inadvertently overtighten, setting us up for US 2006 housing style correction.
Equities had moved up in anticipation of today’s move (i.e. stocks do well when tightening is to be less than previously expected) although noting the fall in the AUD and the decline in the 10 year would suggest that a more hawkish tilt was expected.
Short run macro market moves are notoriously fickle, and can simply represent traders getting caught marginally offside.
For us, the RBA’s move is sensible. There are a lot of economists calling for harder/higher/tighter rates, and we think gradualism is the more prudent course to chart, particularly if you believe that supply side factors will gradually improve (on their own) over time, which is what the anecdotal data seem to suggest.
To argue the contra case, you can see where the “it’s not enough” hawks are coming from. Strike off any number between 2% and 6% from the RBA rate, and compare to the real rate. Hence the “behind the curve” crowd.
I am very sympathetic to those views, equally, I think overlevered homeowners are in for a world of hurt.
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.