...won't help the equity market, and provide sidelined market participants to hold out longer waiting to see how the weakening economy unfolds and its effect on the market. Rates now on hold for well into 2025: RBC
Sarah Jones
RBC warned that the significant new spending from the budget, especially in the next two years, would keep the Reserve Bank’s cash rate on hold well into 2025.
The spending “could well limit any possible easing next year,” RBC warned in a note to investors.
The broker said the budget was “modestly negative” for bonds when including the likely doubling in ACGB bond issuance, estimated to be around $110 billion of funding needs.
The broker added that there were five key points the market should focus on:
1. The funding task – more than double FY24 and larger than we expected
2. Fiscal impulse – more expansionary than expected and will keep the RBA on hold for longer
3. Key policy measures – supportive of activity, less helpful for inflation
4. Structural deficit – persistent and deteriorating
5. Macro forecasts – persistent sub trend growth and likely inflation challenges
