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The RBA’s facing a big credibility problem | Ausbiz
Almost everyone thinks the Federal Reserve will hike rates this year. The only real question is by how much? While markets have priced in over 100 basis points of tightening over the next year, Oreana Financial Services’ Isaac Poole thinks we may be putting the cart before the horse when it comes to hawkish rate expectations. “A couple of hikes are likely. Probably before the end of the first half. But policy works with long lags, and I think the Fed will want to see where inflation is really going,” he says. “Market pricing for four hikes this year and only two next year feels backwards. If the Fed moves gradually it will help to extend the cycle.” While the RBA has made plenty of noise about being in no rush to hike rates, Isaac says the bank will face a big credibility problem if it doesn’t acknowledge the rapid improvement in the economy. “The end of yield curve control was messy. The view that rates won’t move higher this year or next lacks credibility,” he says. “The RBA will need to manage its communication better and prepare markets for hikes.” On the asset allocation front, Isaac says opportunity has arisen from the recent bout of market volatility. He likes the look of Aussie equities for the first time in a while, suggesting local corporates have lagged the earnings recovery experienced in other markets.
(Source: Ausbiz)
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