The article on the front page of the Australian Financial Review from this morning said it all. $40 Billion lost off the share market on the announcement of the RBA decision to cut rates. It is impossible to know how long the fallout will go on for but we hold the view that this is purely a knee-jerk reaction and the markets will quickly re-assess and recover their previous position.
We have been saying for some time that the last cut required had been made in February. When confidence in the economy is so weak, good news or bad news when it is unexpected is not going to be received well. It seems that a bad call has seen the RBA Governor go from hero to villain. Monetary policy is often described as "a sledge hammer strategy when a tack hammer is required". Here lies an example of why the RBA does not take any decision they make lightly.
We still hold the view that rates will stay on hold but may stay on hold for even longer in light of these recent developments.
Enjoy for a little while, the lowest home loan rates we have ever had!