6 Apr 2022
RBA Announcement April 2022
April 2022 - Article provided by PSK's Chief Investment Officer Chris Lioutas.
The Reserve Bank of Australia decided to maintain the cash rate target at 0.10% at it’s April meeting.
The decision was expected by the market. However, the market was always going to be firmly fixated on any changes to the wording in their statement, and that’s exactly how it played out with the market seeing the removal of the word “patient” to imply that the Board was done being patient. As a result, Aussie equities fell, bond yields rose, and the AUD/USD also rose.
The statement was largely a continuation of March’s statement, whilst emphasising that ongoing supply side problems and the Russia/Ukraine conflict continue to exert upward pressure on inflation. The Board made clear that we don’t have the inflationary pressures of many other countries (e.g., USA), with underlying inflation within their 2-3% band. But that uncertainties remain relating to the speed in which supply-side issues are resolved, developments in global energy markets, and the evolution of overall labour costs with labour markets incredibly tight.
The Board re-emphasised that they want to see actual evidence that inflation is sustainably within the 2-3% target range before it increases rates. They expect inflation to increase further in the period ahead but are pinning the sustainability of higher inflation on the growth in labour costs in the forward period.
Our Thoughts
Whilst everyone expects rates to go up, the differences of opinion relate to the start date and the pace of rises thereafter. The market now has cash rates priced at 2.00% for December 2022 and another 1.4% of cash rate hikes in 2023, which would see a December 2023 RBA Cash Rate at 3.20%.
The Bank has previously mentioned that they wanted to wait for 2 more prints of quarterly inflation, which would imply no rate rises until August. But if the market is correct, and the Bank has loss some patience, then 1 inflation print could force their hand which would imply a 1st rate rise at their May or June meeting.
Whilst we see rates moving upwards over the course of this year and next, we don’t believe the economy, and more importantly the household, can withstand the rate rises currently being implied by the market. If that’s the case, that’s somewhat positive for the outlook for equities, bonds, and property, and negative for the Aussie dollar (on interest rate differential grounds vs the USA).
But it’s a highly fluid situation and the next couple of quarters of data will be key.
As always, if you have any questions or your personal circumstances have changed please do not hesitate to contact your financial adviser.
General Advice Warning - Any advice included in this [e.g. document] has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs.
