The ASX made a swift recovery from a dip earlier this morning as the RBA announced it would hold the cash rate at 4.10% this month, jumping from 7,235 points to 7,284.40 in 10 minutes – almost a full 50 points.
All-in-all the ASX gained 34.20 points or 4.7%, crossing above its 125-day moving average.
More on the RBA decision in a moment.
The sectors were a mixed bag. Energy (+0.88%), Financials (+0.89%), Real Estate (+0.74%) and Materials (+0.38%) were up; Industrials (-0.23%), Healthcare (-0.18%), Communication Services (-0.16%) fell; while the others are down.
Commodities were in better shape, with metals mostly climbing – tin in particular with a 2.20% uptick – while zinc slipped 0.38%, nickel fell 0.27% and West Texas intermediate 0.47%.
The best-performing stocks for the day were Costa Group Holdings Ltd, up 13.18%, and Sayona Mining Ltd (ASX:SYA), up 6.76%.
Over the last five days, the index has gained 2.28% and is currently 3.80% off of its 52-week high.
RBA holds cash rate
The RBA Board cited “a more sustainable balance between supply and demand in the economy” and “uncertainty surrounding the economic outlook” for its decision this month, although the central bank cautioned that inflation is still too high and the jobs market is very tight, despite monthly inflation declining.
“Today’s decision to pause rate hikes shows the RBA has realised the economy is on a knife’s edge and that it must pivot to achieve its goal of threading a “narrow path” through current economic conditions,” Deloitte Access Economics partner Stephen Smith said.
“Growth is already slowing sharply, led in particular by the two most interest-rate sensitive components of economic activity – consumer spending and housing investment.
“Moreover, a significant part of the pain – of fixed-rate mortgage holders resetting to variable rates – is yet to be felt in full.
“It is notable that governor Philip Lowe has dropped reference to the economy remaining on an “even keel” in his statement announcing today’s monetary policy decision.
“The pace of inflation has peaked and is moderating, wage growth is not excessive, medium-term inflation expectations are not rising, and the RBA’s own research shows that at least half of inflation in Australia over the past year has been driven by supply factors.
“Today’s pause is welcome and will be a relief to households. It is also consistent with the fact that central banks are impotent in the face of supply-side inflation pressures.
“We should all be inflation hawks. Price growth which is elevated for extended periods, or is volatile, is damaging for the economy and prosperity.
“But price growth which is primarily caused by issues of supply – be it global shipping costs and import prices, the costs of a disorderly energy transition, or higher rents and house prices because of a handbrake on housing construction – cannot be readily solved by higher interest rates.
“Monetary policy is a spent weapon. We must turn towards fiscal policy, investment and innovation to lift productivity; competition policy to improve efficiency and erode market power; and tax policy to boost prosperity.”
Of 35 experts polled by Finder.com, 80% or 28 said they believe the cash rate will peak between now and November this year, although the consensus was that inflation would need to fall to 3.25% before a rate cut would be on the cards.
Interestingly, a majority of panellists (80% of 20/25) don’t believe Lowe will remain the RBA governor.
Peter Boehm from Pathfinder Consulting said there was a general lack of trust and support for the current governor.
“He has shown through poor decision making and various public statements he does not understand the human impact of the rate rises he has instigated,” Boehm said.
Nalini Prasad from UNSW Sydney said the RBA Review noted policy errors that occurred while Philip Lowe was governor.
“It's hard to change the culture of the organisation without changing its leader," Prasad said.
Major banks are currently predicting interest rates will top out between 4.35% and 4.60%. Only time will tell.
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