Monetary policy in Australia is less effective than it was, according to Plato Investment Management’s managing director Don Hamson, and the Reserve Bank of Australia (RBA) would be wise to hold off any further rate cuts.
Hansom said there was no need for the Reserve Bank of Australia to cut rates further than the two cuts already seen in June and July which brought rates down from 1.5 per cent. Analyst expectations is currently for one further rate cut this year which would see interest rates fall below one per cent.
“Future rate cuts won’t do much good, it is just pushing on strings. The RBA is trying to get the government to do more fiscal stimulus and we need that, not just in Australia but around the world,” he said.
“I understand the RBA is trying to be pre-emptive but they do not need to do anymore and use up all their powder already. I think they would be better staying at one per cent.”
He said there were few beneficiaries from a rate cut, mostly mortgage payers, and negatives for other demographics.
“Retirees are negatively affected by low interest rates, they spend less and then the economy slows down. It is a positive for mortgage payers but then they just use it to pay their mortgage off rather than spending it.
“Monetary policy is as much of a drag for some as it is a benefit for others.”
When it came to quantitative easing, Hansom said he did not ‘see the benefit’ of utilising this form of monetary policy. This process of money printing was used widely in the US and the UK following the global financial crisis but not particularly in Australia.
However, there was now speculation among economists that it needed to be considered if interest rate cuts were no longer having a substantial effect.
This would involve the RBA buying bonds to flood the economy with billions of dollars which would further lower interest rates as large-scale bond purchases drive up the price and lower their yield.
Plato runs an $1.6bn Australian Shares Income, $62m Global Shares Income and $31m Australian Shares Core fund.
Its flagship Australian Shares Income fund has returned three per cent over one year to 31 July, 2019, according to FE Analytics, versus returns of 1.7 per cent by the ACS Equity-Australia Equity Income sector.
