With global equity markets looking to end 2019 with a sell-off, all eyes are on central banks around the world and how they view the state of the global economy. For the Reserve Bank of Australia (RBA), their hawkish tone has become more subdued of late, hinting that any further rate hikes may not happen until 2020.
In a recent report by Business Insider Australia, Tapas Strickland, a strategist from NAB confirmed the RBA’s stance.
“Ongoing uncertainty and softer tones from the RBA recently has seen the market start to price in a small chance of the bank cutting rates next year. The OIS [overnight index swap] market now prices a 16% chance of an RBA rate cut by August 2019, while further out the RBA is seen to be on hold throughout 2020,” he said.
The general consensus amongst market economists is that the RBA’s next interest rate decision will be a hike, but it may not come for some time. This doesn’t completely rule out the possibility of a rate cut if necessary. Guy Debelle, the RBA’s Deputy Governor recently explained that the RBA has the capacity to lower interest rates and employ other monetary policy responses, if needed.
“The Reserve Bank has repeatedly said that our expectation is that the next move in monetary policy is more likely up than down, though it is some way off,” Debelle said. “But should that turn out not to be the case, there is still scope for further reductions in the policy rate. It is the level of interest rates that matters and they can still move lower.”
Debelle has also hinted that the RBA may have the capacity to employ other policy measures used by other central banks during the Global Financial Crisis, namely the US Federal Reserve’s quantitative easing (QE) program.
“We have also been able to examine the experience of others with other tools of monetary policy and have learned from that. Hopefully, we won’t ever have to put that learning into practice,” he said. “QE is a policy option in Australia, should it be required.”
The take away — the global markets are currently in an interesting, position and everyone is eager to predict the next economic downturn. While this is a natural part of the economic cycle, keeping abreast of how equity and bond markets around the world are performing, along with the performance of Australia’s key industries will help to keep you aware of where things are heading without the noise.
Closer to home with your property investment portfolio, stay focused on the numbers (eg. new housing starts, home values, bank lending rates), not sensationalised headlines. And like other investments, you need to speak with your financial and legal advisory professionals to make sure everything is structured in a way that best addresses your circumstances.