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Note from the MD: RBA holds fire yet again – but inflation tipped to climb further

April 6, 2022

Note from the MD: RBA holds fire yet again – but inflation tipped to climb further

Another Reserve Bank board meeting, another decision to hold the cash rate at 0.10%.

Another Reserve Bank board meeting, another decision to hold the cash rate at 0.10%.

Tuesday’s decision probably wasn’t a surprise to anyone, with analysts expecting the status quo to continue, but RBA governor Philip Lowe made it clear his focus will be on inflation and the speed at which supply-side problems pushing prices high resolve themselves. 

In his statement following the cash rate decision yesterday, Lowe noted that while we haven’t had to contend with the big price hikes seen overseas, Australians have still been grappling with some sizeable increases.

What’s more, he and his RBA board peers expect our aching hip pockets will only experience more pain in the months ahead, as the situation in Ukraine further entrenches some of those problems that emerged during the pandemic.

The RBA decision certainly took the sheen off markets, too. After hitting an intraday high of 7573.4 – nearly 0.8% higher than open – the market started to ease back before abruptly giving up almost all those gains immediately after the announcement, eventually closing at 7527.9.

A strong reaction, certainly for an outcome that was all but guaranteed, but the consensus seems to be it wasn’t the decision to hold that triggered the sell-off, rather the omission of Lowe’s familiar comments about the RBA being “prepared to be patient” with rates that sent stocks tumbling.

That line has been present in Lowe’s statements for months now and its absence in this month’s comments speaks volumes.

Even so, yesterday still marked the market’s second consecutive day of gains.

The XJO opened lower this morning, testing support around the 7465 level. There were broad declines across all sectors, with major pullbacks in tech and materials, as many major stocks have been testing key resistance levels over the past week.

Today’s price action will determine which side of 7465 the XJO will trade on in the coming days. A pullback will see some support around 7400, with the next support around the 200-day MA and 7340 levels. A recovery will see resistance at the 7540 level, with the next resistance at 7630.

Outside of markets, Monday’s retail trade figures from the ABS show Australians are starting to spend again after the Omicron surge curbed our shopping sprees at the end of last year.

Retail turnover lifted 1.8% in February, with restaurants and cafes providing much of that momentum – up 9.7%.

One investor who’s been keeping a close eye on inflation – and what it will mean for small and microcap companies – is Joel Fleming, a portfolio manager at Yarra Capital Management.

Joel will be joining us this Friday, 8th April, at 12pm (AEST) for The Insider: Meet the Fund Manager webcast, delivering insights on why he thinks the resource sector is on track for a strong run. He’ll also discuss some of the key stocks in Yarra Capital’s portfolio that could be well placed to navigate the current economic environment. To join us for this session, click here.

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