UBS strategist Giulia Specchia says central bank predictability is key to winning the confidence of international investors, and the Reserve Bank is no different.
UBS strategist Giulia Specchia says investors hate surprises, and the Reserve Bank should therefore aim to be as predictable as possible if it wants international investors to return as buyers of Australian government debt.
“The RBA is definitely aware that the way they handled forward guidance created issues of credibility and reputation, and they are becoming more predictable,” Specchia says, with a nod to the dramatic turn of events leading up to the November 2021 policy meeting.when it was forced to abandon its pledge that interest rates would remain near zero until 2024.
It is extremely unlikely the RBA would reverse its current thinking, she believes, but it certainly weighs on the minds of those investors who actively trade in the fixed income world. “It’s not just about the search for yield, it is also about understanding the market volatility on the back of a potential RBA shift.”
She argues the situation in Australia is very different: with 70 per cent of mortgages based on variable interest, higher borrowing costs are immediately felt by home-owners compared to other economies, where the majority of home loans are set by fixed rates. If that proves correct, UBS expects the RBA to pause at a 3.35 per cent cash rate level, implying one further increase.Roman-born economist Specchia studied in Belgium where she received two masters degrees, first in economics and then econometrics. She enrolled in a PhD in labour economics, but felt the field was not “dynamic” enough. “I was too young for settling down in academic life and I didn’t see myself as a professor,” she recalls.
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