I’m not sure we can take the RBA at face value right now.
So the RBA cut rates a stock-standard 25 basis points last week. It was probably the most anticipated cut in living memory.
The whole nation was hanging out for it.
And remember most of the world started cutting rates six to nine months ago, so we were well over-due.
And so the rate cutting cycle began.
… and ended.
At least that’s what the RBA wants you to believe. Even though markets had given it a 93% probability just a day before the meeting, the RBA wanted to stress that it was a line-ball call, and the argument was finely balanced.
More than a few on the board thought the RBA should have held.
And then the Governor came out in her presser and said that she thought markets were getting ahead of themselves. Going into the meeting markets had positioned themselves for a solid four rate cuts this year.
Those markets were more “optimistic” than they should be, according to the Governor.
In fact, there’s a good chance we’ll get no more cuts this year, she reckons.
And so that was the message. Yes, here’s a rate cut. But don’t come to us like some sort of financial Oliver Twist looking for more. There might not be any.
And the papers were quick to parrot the message. It was a very ‘hawkish cut’. Maybe there were no more rate cuts coming.
But not everyone believed her.
The big money certainly didn’t. Bond traders thought she was ‘talking rubbish’:
“Somehow the RBA is debating whether one’s enough,” said Rob Mead, the head of Pimco in Australia which is among the world’s largest bond managers.
“Don’t listen to that, it’s rubbish,” he told The Portfolio Construction Forum in Sydney on Wednesday. “They’re doing another three in 2025 so if you’re going to keep waiting [to buy bonds] it’s on you. But please be aware that this economy needs rate cuts, and so they are coming.”
He said that without the government sector, Australia’s economy was “already in a recession”.
“If you look at the economy without immigration, retail sales are per capita already negative. Households are hurting. They need more relief, and one cuts just not going to do it. There’s a lot more required.”
He’s not wrong. The Aussie economy is a one-trick pony right now, and it’s all the public sector. The private economy is already in recession and begging for rate cuts.
So why is the RBA selling us on “one and done”?
Angus Coote at Jamieson Coote Bonds nails it:
“The market is right I think,” he said. “[The RBA] will see the first quarter inflation report by May and that will give them another chance to cut.”
“They don’t want to signal more rate cuts and then see the property market in particular take off like it has in the past at the start of cutting cycles and create wealth effect and see inflation increase,” he said.
Yep. The RBA doesn’t want to be seen to be creating another boom in the property market, and making unaffordability worse.
So they’re ‘talking rubbish’ to try and stop the coming boom in property prices.
But look through it.
It’s already on.
DB