The Reserve Bank of Australia (RBA) has a single clear mandate and that is to target inflation, so it’s hard to walk away from higher-than-expected inflation numbers and completely ignore them.
“We think the tone will change in today’s meeting minutes and the RBA governor will spend the next few months articulating the new case towards opening the door and reassessing options,” said Peter Esho, co-founder at Wealthi, a property investment company based in Sydney.
“The bond market is the best indicator and market pricing is already telling us that traders are assuming the party might be over for ultra-low rates. We’re more likely to go up sooner than expected, but not immediately. The fine details matter,” Esho said.
According to Esho, we’re cycling off the lowest interest rate environment in more than 600 years and it makes sense that interest rates will eventually rise due to inflationary pressure.
“After all, that was the whole point of the stimulus we received during the pandemic,” he said.
Bottom line: We think the euphoria in the residential real estate market will start to moderate and bring with it a much-needed reality check. Short term real estate gains are good vanity metrics for investors, but the long-term investment environment is more important to maintain.
He added that “the stock market is already showing signs of fatigue, so earnings will need to benefit from higher inflation if we are to go higher from current levels. Overall, it looks like 2022 is a year where markets will start trending back to their long-term averages.”
Originally published by Peter Esho, co-founder at Wealthi