The single biggest issue for Australian assets

In a recent interview with Dr Philipp Hofflin, Portfolio Manager at Lazard Asset Management painted a scenario in which strong downward pressure on the Australian Dollar would force the RBA’s hand to raise rates, to avoid importing inflation. He said it would be “very difficult for asset prices and households, particularly as there is so much more debt than in 1991”.

“The greatest risk to all asset prices is a world in which in which Central Banks had to go from being the friends to the enemies of asset prices, to slow inflationary pressures“

Key points 

• Rising rates is THE issue for all assets in the world, including Australian assets,
• Level of gearing is not a reason rates can’t rise. Sometimes they have to go up, as occurred in the 70s and 80s.
• Negative real rates are not sustainable if inflationary pressures emerge.
• Strong downward pressure on currency could risk importing inflation, therefore forcing the RBA's hand to defend by raising rates
• This scenario would be very difficult for asset prices and households. Have so much more debt than in 1991.