A new cycle has begun!
Grant Ryan weighs in on the latest RBA announcement and what this means for investors.
Back in January, Andrew Irvine NAB CEO grabbed my attention when he observed that the first rate cut’s importance was supercharged because its “impact on the psyche of consumers and businesspeople is likely far greater than the actual impact it will have on cashflow”. Andrew is right – this rate cut decision is the most anticipated RBA decision in many years because most Australians have endured pseudo recession-like conditions for some time now. The financial markets said it was 90% likely – and they were right. The sigh of relief of Australian families is palpable as we reflect on the first Rate reduction in 5 years! Woohoo! Finally.
Today’s decision officially signals the end of one of the most devastating rate increase cycles in decades. Interest rates are increased to deliberately heap financial pressure on households by increasing servicing costs in the hope that Australian families will have no choice but to pull back on spending and thus pull money out of the market and ease inflation. Higher rates are in their very nature painful, but what makes them doubly so is the ongoing emotional strain and uncertainty of how long higher rates will last for. When a rate cut finally comes it is not the cut itself but the relief that a new cycle has begun with immediate threats of further increases now firmly off the table. We cannot underestimate the significance of this decision today to reduce the official cash rate from 4.35% to 4.1%, and what it means for millions of people all around Australia.