• Clifford Bennett , Chief Economist at ACY Securities


• 31.01.2022 03:15 pm
#stocks

Everyone is so excited...

The RBA may actually do SOMETHING?

"A belated shift in their 'talk' would at least be some light emerging at the end of what has been a long dark tunnel in the RBA's history."

Good morning,

The Reverse Bank of Australia meets tomorrow, and of course it is only a question of the degree to which they further embarrass themselves.

It will be a difficult path to steer to repeat what the Fed and every other central bank has been saying, and sound like they though of it themselves?

Then, of course, there is the possibility that they will decide Australia "is the best in the world" at everything. The current populous movement doing all of us such a dis-service. They could actually say something entirely stupid like the economy is going to be strong, but we do not see any sustained inflationary pressure"? Fail on both points.

What the RBA should do:

1. Immediately on the day stop all bond buying.

2. Raise interest rates to 0.50%. As just the start of getting back to more normal levels.

What the RBA, being the RBA will probably do:

1. Say it will maintain the current reduction path in bond buying.

2. Say with a strong economy rates will begin to return to more normal settings at some point.

In other words do nothing.

However, a belated shift in their 'talk' would at least be some light emerging at the end of what has been a long dark tunnel in the RBA's history. We are still left with a global inflation tsunami environment, and that is true of Australia too. The RBA is acting too late by definition only responding to over-whelming data after it has been accumulating for some time.

Over-valued equity and perhaps property markets may be vulnerable to any news of a start of return to where interest rates really should be.

It is difficult to forecast where rates will be by year end. They should be at least 2.5% or higher. The world's slowest central bank, in every sense of the word, may struggle around 1.00% to 1.50%. However even the RBA should be capable of at least this target range.

Most market participants and commentators will be surprised.

Clifford Bennett

ACY Securities Chief Economist.

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

All commentary is on the record and may be quoted without further permission required from ACY Securities or Clifford Bennett.

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