Invast Blog

RBA probably at the end of the rate cutting cycle

The decision to cut the cash rate was widely expected but our interest is on what the RBA does from here on. It’s a very dovish statement but Invast believes the RBA is very close to the end of its rate cutting cycle. The RBA sees monetary policy benefits still flowing through the economy with more expected. It acknowledges the impact of the lower AUD and continues to talk down the currency, hoping it will provide stimulus. It has however cast a closer eye on inflation.

A statement which seems dovish on face value but one which also starts to acknowledge the impact of all the recent rate cutting measures flowing through to the domestic economy.

Bottom line: We think the RBA is just about at the end of the rate cutting cycle. While there are anecdotes that the economy is still cooling, the behavior of the housing market and its resilience also suggests that buyers are confidence in their purchases. The RBA will have this in mind, inflation is still within the target band range and not below it. The steep fall in the AUD will also create some inflationary pressures and cool the demand constraints the RBA had previously cautioned. Investors need to now re-evaluate their portfolios for when rates do rise – and they will. The banks have run their course and the cyclicals – particularly the larger resource stocks are primed for a recovery.

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