Uncertainty continues to saturate global financial markets as investors await major catalysts from data or updates on monetary policy. The question is how much confidence has already been damaged by the ongoing US-China trade soap opera and to what extent this will feed through to the real economy. Trump once again turned up the dial with further comments about the trade war over the weekend as both sides announced tariff increases pushing US equity markets lower on Friday night and which should see our market open weaker this morning.
The latest RBA board meeting minutes confirmed that the RBA would “continue to monitor developments in the labour market closely and adjust monetary policy if needed to support sustainable growth in the economy and achieve the inflation target over time”. This month however, the RBA has overlayed some additional concerns about global developments.
So, while the market has locked away two further rate cuts, some are arguing that more (easing) might have to be done if international developments don’t improve, hence an official cash rate below 0.50% is now being discussed.
For me, there is no silver bullet out there to spark a global recovery and no end to the continual grind lower in interest rates (to historic lows). That said, I think a sub-0.50% official cash rate remains remote and I believe the RBA (and government) will turn to “unconventional monetary policy measures” including quantitative easing before cutting rates to these levels. Financial markets however are a little more bullish and currently anticipate a terminal rate of 0.5% by mid next year with around a 30% chance of a further cut by the end of 2020.
This will be the last edition of the Weekly Economic Commentary. After fifteen years as Treasurer of Rural Bank, I’m moving into the next phase of life. It’s been a pleasure keeping you updated on the latest news from financial markets and providing my view on what’s happening in our economy. Rural Bank will continue to provide insights and analysis into commodities, farmland values, farm business performance and topical agricultural issues - subscribe here to receive these updates.