BlackRock positioned on rates
While many may have been surprised by the Reserve Bank of Australia's (RBA's) decision to cut the official cash rate by 25bps to 2.75 per cent last week, Steve Miller, head of fixed income for BlackRock said that in his view there had been a greater prospect of a cut and that BlackRock had positioned its portfolios accordingly.
"That view was based on an assessment that activity growth was running a little below trend and that as yet there was little sign that growth leadership was transitioning from mining investment to non-mining investment and household spending, along the lines that the RBA had been hoping for," he said.
"The RBA had noted previously that it did ‘have scope to cut if needed.'"
Miller said that the case for further additional easing had grown recently due to softer domestic and international data, a strong Australian dollar despite falling commodity prices and weakness in the Federal Government's fiscal position due to declining nominal income growth.
"There is no strong forward guidance but it is worth noting that the RBA decided to use ‘some' of the scope for lower rates that was afforded by quiescent inflation," he said.
"I suspect there remains a very soft easing bias.
"In my assessment, it is investment outside of the resources sector that is the key concern," Miller continued.
"Were that to continue to languish and were inflation to remain subdued, further rate cuts in 2013 are likely."
"We also remain somewhat concerned about recent softer growth in China."
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