The RBA gives ASX 200 shares a slither of good news on a down day

About Latest Posts Brendon LauBrendon's passion for shares started by accident in 2003 and he has worked in various roles …

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Reserve Bank of Australia (RBA) has given ASX 200 investors a reason to smile even as they face a mounting wall of worry.

Our central bankers followed newly installed NSW premier Dominic Perrottet by promising stability as they held the cash rate steady at the record low of 0.1% at today's monthly meeting.

If anything, the RBA was unwavering and stuck to its tapering and interest rate plan even in the face of the COVID-19 delta outbreak.

RBA rate decision gives Delta the flick

RBA Governor Philip Lowe media release opened with the impact of delta on the Australian economy. But he didn't appear to be concerned.  

"This setback to the economic expansion in Australia is expected to be only temporary," said Dr Lowe.

"As vaccination rates increase further and restrictions are eased, the economy is expected to bounce back.

"Many businesses are now planning for the easing of restrictions and confidence has held up reasonably well."

RBA gives ASX 200 shares a boost

The RBA did flag that the timing and pace of the recovery is hard to pin down. But it believes that our economy will start growing again in the current quarter.

Our central bankers are so unconcerned that it kept to its quantitative easing (QE) tapering timeline. They maintained the 10 basis points target for the April 2024 Australian Government bond and recommitted to purchase government securities at the rate of $4 billion a week until at least mid-February 2022.

The board's optimism initially gave the S&P/ASX 200 Index (Index:^AXJO) a modest boost. But ASX 200 shares surrendered these gains to close 0.4% in the red on Tuesday.

The RBA divergence

The RBA's steady as she goes approach to monetary policy stands increasingly at odds with other central banks. The Reserve Bank of New Zealand is tipped to start hiking interest rates at its meeting tomorrow. The US Federal Reserve has also started talking about raising rates as early as next year.

The pick-up in economic growth is one reason why these central bankers are more hawkish than the RBA. But the increasing risk of persistent inflation is another factor.

The RBA is unconcerned about inflation, despite some warning signs like the ongoing surge in energy costs.

"Wage and price pressures remain subdued in Australia," said Dr Lowe.

"In underlying terms, inflation is running at around 1¾ per cent and wages, as measured by the Wage Price Index, are increasing at just 1.7 per cent.

"While disruptions to global supply chains are affecting the prices of some goods, the impact of this on the overall rate of inflation remains limited."

Foolish takeaway

Economists will be praying that he's right. Being caught behind the inflation eight ball will be a disaster for Australia as its difficult to control once the genie is out of the bottle.

Regardless, the divergence between the RBA and its global peers is almost certain to keep the Australian dollar on the back foot.

This is happening just as international holidays are starting to look like a distinct possibility again. Talk about bad timing.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »