The Reserve Bank of Australia left interest rates on hold for the fifth month in a row. The March monetary easing is believed to be working as expected, with continued bond buying to keep the 3 year bond yield at its 0.25% target. The Victorian coronavirus outbreak creates more economic uncertainty with lower growth expected in 2021 and unemployment up to 10% later this year.
The Victorian lockdown is likely to cost at least $12 billion as the economy had not fully recovered from the first lockdown. This may contrast with growth in the rest of the country, assuming business confidence remains and other outbreaks are kept to a minimum.
This year’s federal government deficit may be worse than forecast from both lower revenue and more stimulus. Further stimulus will likely be targeted by industry, the 2022 personal tax cuts may be brought forward and there may be investment incentives. This would see the deficit and debt levels blow out to the highest levels since World War 2, however this is propping up the economy and made possible due to ultra-low interest rates and our comparatively low debt and deficit levels at the start compared to other advanced countries.
More monetary easing and economic stimulus is likely, although the RBA does not want negative interest rates. They may cut rates to 0.1% (from 0.25%) and purchase more government bonds even beyond 3 year bonds. The good news for borrowers is that interest rate increases are likely more than 3 years away. For retirees, this means you need to carefully assess your investments and cash holdings. The likely reason shares are holding up is positivity outside Victoria, treatments and an eventual vaccine for coronavirus, policy stimulus and ultra-easy monetary policy which makes shares look relatively cheap.
Please see the full article for more of Shane Oliver’s thoughts.
You can download and print the full article here.
Want to have a 30 minute conversation by phone with Adam specific to your current situation?
About the Author
Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.
Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.