Revisiting Our Interest Rate Views
BMI View: Although recent decisions from monetary authorities and governments around the world have benefited some segments of the Australian economy and its financial assets, we believe that the country's own economic woes will pressure the Reserve Bank of Australia (RBA) to lower its benchmark rate by another 25 basis points to 2.25% by end-2013. Moreover, we maintain that Australia will see a period of subdued economic growth due to the ongoing rebalancing process and, thus, we believe that there is value in the long-end of the Australian yield curve, with scope for the spread between the two and 10-year bonds to narrow.
Recent decisions by the US Federal Reserve and other authorities around the world have benefited some segments of the Australian economy as well as its financial assets in recent weeks. While structural deficiencies in the domestic economy has not been eradicated, we see a growing risk that monetary authorities could take their foot off the easing lever in the near term, but highlight that this is likely to translate to more aggressive easing in 2014.
Short-Term Rates: Maintaining Our Call For Another Cut Despite Growing Risks
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