Australia’s decision to cut rates to a historic low won’t end with today’s action, as the country’s central bank is one of few able to take conventional action to bolster growth efforts.
Highlighting how many developed world central banks are operating with zero or negative rates, Bezalel said it makes sense for Australia to use what policy tools it has at its disposal, particularly in light of recent market developments.
He said: ‘The recent strength in the Australian dollar and the lack of upward pressure on wages have proven a headwind to inflation figures in the region. Australian CPI came in at just 1% in 2Q16 CPI, which is comfortably below the RBA’s target of 2-3%, putting pressure on the central bank to cut rates.
‘Cash rates at 1.5% in Australia remain very high for the developed world, making it one of the few countries able to ease monetary policy conventionally in a meaningful way,’ Bezalel added.
Bezalel, who has Australian debt as five of the top 10 positions in the €5.9 billion Jupiter JGF Dynamic Bond fund, believes further action is more than likely given the changing global market.
‘It is likely we see additional rate cuts of 50bps or more in the coming eighteen months as Australia adjusts to a slowing, less industrially driven Chinese economy and feels the brunt of disinflationary forces provided by high global debt levels and adverse demographic trends.’
Bezalel previously issued a warning on Australia in the summer of 2015. He said Chinese growth was slower than official figures suggested, which would weigh heavily on Australia due to its strong commodities links with the emerging market giant.
Speaking at the time, he said: ‘Given Australia’s strong reliance on China as a receiver of their exports, and the changing nature of Chinese economic growth, this constitutes another reason for being concerned around the outlook for Australian growth.’
The Jupiter JGF Dynamic Bond L USD Q Inc HSC returned 21.5% in US dollar terms over the three years to the end of June 2016. This compares with a 1.1% loss by the average manager in the Bonds – Global sector over the same timeframe.