OPINION: Investors believe the Reserve Bank of Australia’s cash rate will peak at 3.5 per cent, but are not pricing in much in the way of future cuts.
At its last board meeting in December, the Reserve Bank of Australia put a new monetary policy alternative on the table for the first time this cycle: the option to pause its ultra-aggressive interest rate increases, which hadwith an unprecedented 300 basis points of borrowing rate rises in seven months.
In rationalising its decision to continue turning the screws on the Aussie economy, the RBA’s board interestingly “noted that no other central bank had yet paused”. That all changed on Thursday when Norway’s influential monetary policy authority, Norges Bank, became the first developed world central bank to halt raising rates since the globally synchronised tightening cycle began in late 2021, according to JP Morgan.
There have been some striking commonalities between the RBA and Norges Bank’s historical cycles, which is not that surprising given the cointegrated nature of the global growth and inflation pulses. Both central banks cut rates at about the same time in 2008, after hawkishly lifting them that year before it became clear that the global financial crisis would crush demand. They then stopped easing and began boosting rates again in 2009 at similar junctures.
Yet there are arguably even more attractive deals going around. For example, both NAB and Macquarie have had to pay very high interest rates on their Tier 2 bond issues in US dollars recently, which carry the same credit ratings as Bendigo’s senior-ranking debt securities. NAB’s Tier 2 bond offered 6.43 per cent annually, while Macquarie’s paid 6.80 per cent . Swapped back into Aussie dollars, these bonds delivered more than 7 per cent annually.
Malaysia Latest News, Malaysia Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Investors risk making a classic portfolio mistakeIf you believe an ineffectual Fed will push up interest rates but fail to contain inflation, and that economic growth will slow, then 60:40 may be a volatile portfolio with weak returns.
Read more »
The four challenges ESG investors need to tackle this yearOPINION: An energy crisis, a green trade war and the end of cheap money will test the commitment of ESG investors in 2023.
Read more »
Heartbroken Nucoal investors find hope in long-running compensation fightThere was a huge snowball effect when a Hunter mining executive was accused of wrongdoing. He has cleared his name and shareholders say they deserve justice.
Read more »
The Reserve Bank of Australia should hold off on raising rates again next month. Here’s why | Greg JerichoAllowing time for the impact to flow through would be sensible. Inflation is falling, it’s just not yet visible in official figures
Read more »
Perpetual investors pull $1.2b before Pendal mergerThe blue-chip fund manager suffered net outflows of $1.2 billion in the December quarter, but the so-called Santa rally in financial markets saved the company from ending the year with a loss.
Read more »
Where income investors are finding more than 11pcTop ETFs are paying double-digit returns but lower-risk bonds and risk-free term deposits are offering more than 4 per cent.
Read more »