Wow, I did not see that coming so soon – it turns out that our Dr. Lowe speaks “Draghi”.
‘We’ll do what’s necessary’: RBA’s Lowe flags 7 per cent inflation, more rate hikes
For all cat-video fans, “Draghi” is a dialect spoken by absolutely desperate and “put-into-a-corner” central bankers who must protect their credibility at all costs (costs are usually paid by loyal subjects citizens) and who have their focus on one and one target only (usually a mitigation strategy for some very obvious risk that have totally missed).
I will skip through all analysis and give you my opinion as a Bottom-line:
- Next two hikes will be 50 bps or more (65 or even 100 is very possible as RBA do not provide clear forward guidance as Fed and like to surprise markets)
- Commercial banks will go into panic mode and will tighten their credit policies
- Spreads will widen dramatically (put simply, we might see mortgages with 200-300 bps apart because of the credit scores)
- Business and Consumer confidence will drop substantially (already in progress)
- Unemployment will go up (will show in the 2022Q3 reading)
- We will officially be in a recession in late 2022-early 2023
As all of this will not happen in vacuum, there will an interesting side-effect – liquidity will be quickly sucked out from capital markets and with TFF repayments scheduled for 2023-2024, banks will go to savers which will further tighten the amount of money shovelled around.
Don’t kid yourselves – our fearless doctor has already told you in “Draghi” that he is willing to break this economy to slow down the inflation and he will.
So here is a most important question of the year 2022:
Have you sold all your investment properties yet?
Before you throw that rotten tomato at me, remember that I have given you my opinion on Crypto and I hope you listened. Ah, whatever, keep them coming
Looks like the original title was not appropriate (was changed), RBA staff are reading the forums?
Nope, I don't think we will see NOMINAL negative rates in the near term.
Governments have re-discovered fiscal and that is mighty inflationary hence Central banks will be on the front-foot from here.
The next shoe to drop would be BOJ dropping their YCC and the bond yields will explode which will need rates to go higher.
My read on macro is that we will need to have higher neutral rates than pre 2022 for the same rate of growth.
We probably will land somewhere in 4-5% range if there will be no massive blow-ups or 3-3,5% if there will be.