RBA to maintain historic low rates until at least 2024

The Reserve Bank of Australia (RBA) has today announced that it will maintain its quantitative easing (QE) targets until 2024, as per the original plan. The ASX 200 index hardly moved after the announcement.

The central bank said it will keep the target cash rate of 10 basis points until at least 2024. To support this target, it will continue the QE bond purchase program, which has so far culminated in $74 billion being bought back from the market out of the original target $100 billion.

Importantly, the Bank said a further $100 billion will be purchased following the completion of the initial program, giving it a total of $200 billion – and said it is prepared to do more if necessary.

In Australia, the Bank expects the recovery to continue and unemployment rate to improve from the current 6.4 per cent to 6 per cent by the end of 2021 – and declining to 5.5 per cent by the end of 2022.

The Bank sees GDP to grow by 3.5 per cent per over both 2021 and 2022, and expects it to return to its end-2019 level by the middle of this year.

Current inflation of 0.9% is still below the Bank’s target rate, and expects it to increase to 1.25 per cent over 2021, and 1.5 per cent over 2022. This rise, however, might be temporary because of the reversal of some COVID-19-related price reductions.

The Board said it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.

How this might fare for ASX stocks

The Bank acknowledged that the Australian dollar is trading at “the upper end of the range in recent years”, as a result of the higher yields.

Higher yields have so far pushed down the S&P ASX Technology (XTX) by around 5% this year, as reflation trades are pushing investors away from growth and into cyclical stocks. The higher yields have also contributed to lower valuations in technology stocks, even as the broader ASX 200 index increased by 1.5% year-to-date.

Other ASX stocks that might be impacted adversely by the higher Aussie dollar includes those companies who predominantly generate their revenues in the US. This includes medical equipment company Resmed (ASX:RMD), who is based in California, and Aristocrat (ASX:ALL). Both have been feeling the sting from the stronger Aussie dollar.

Obvious winners from continuing low rates will be lending companies. This list includes, amongst others, Money3 (ASX:MNY), Wisr (ASX:WZR), MoneyMe (ASX:MME), QuickFee (ASX:QFE), and Plenti Group (ASX:PLT).