How can the RBA be so sure?

Chris Rands

Yarra Capital Management

The RBA’s announcement yesterday had me asking one question: Am I meant to buy, or am I meant to sell?

As I discussed with my colleague Darren Langer, co-head of Australian fixed income at Yarra Capital Management during our podcast, the announcement was a little bit confusing in that while the QE program is being slowed down, from $5billion to $4billion in February 2020, we have more certainty over a longer time period.

And it's the certainty in their forecasting that really caught our attention. After all, economists and the RBA itself were thinking 2021 was going to be a pretty good year.

As Darren said:

"Yet here we are heading into 2022, and we're saying the same thing, even though it looks like we're going to get no growth at all in 2021. We just seem to be kicking the can one year down the track."

And then there's the RBA saying they're definitely going to be raising interest rates in 2024, and that the setback to economic expansion is expected to be only temporary, and that the Delta outbreak is expected to delay, but not derail the recovery.

We asked whether that certainty might be a little bit over the top? Could there not be a little bit more of a downside scenario built-in?

Darren and I also discuss:

  • The unemployment target of 4%
  • How and if the government can ever repay the massive and growing budget deficit
  • The likelihood that the word 'transitory' is going to be the word for a 2021, whether it be inflation, growth or unemployment
  • What the actual rates will be when and if they eventually arrive.

For more detail on the above topics and others, including our views on employment and wages growth, tune in to the full podcast below.

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The Portfolio Manager's views expressed are not necessarily reflective of the wider Yarra Capital Management Group.

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Chris Rands
Co-Portfolio Manager, Fixed Income
Yarra Capital Management

Chris is responsible for portfolio management, including portfolio construction and trading for various Australian fixed income portfolios including the Nikko AM Australian Bond Fund at Yarra Capital Management (Nikko AM was acquired by Yarra...

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