RBA raises rates again, Pimp my Portfolio with Henry Jennings & we review the community portfolio

Alec Renehan (0:00)

We're now at the highest level in 15 years. They expect one more rate rise early next year, taking it to 4.85%.

A policy think tank has come out and said, interest rates are a blunt tool, they're a blunt instrument to try and tackle inflation. What we should actually do is target a tax raisers to take demand out of the economy.

Henry Jennings (0:23)

Oh, wow.

Bryce Leske (0:28)

Welcome to another episode of Equity Mates, a podcast where we explore what's possible in the world of investing. If you've just joined us for the very first time, a massive welcome to our community. My name's Bryce.

Alec Renehan (0:38)

And I'm Wren, and today we're talking about the RBA raising rates again. Pimp My Portfolio is back, and we're taking a look at our community portfolio as we ask, can we beat the market? Another big episode, Bryce.

Bryce Leske (0:51)

Love it, cannot wait to get stuck in. So let's do it.

SPEAKER_4 (0:55)

News and markets.

Bryce Leske (0:58)

Stories we're covering today. The RBA has lifted the cash rate here in Australia, and SpaceX Starship has reached orbit for the first time in its history. Let's start with the RBA cash rate, Wren, because I think a lot of people will be hurting.

Alec Renehan (1:13)

Well, yeah, I think so. What what's happened is the RBA raised rates 25 basis points to 4.6 percent. Yeah, a lot of people hurting, but this wasn't a surprise, I guess. Markets were pricing in a 90 percent chance of a 25 basis points rate rise. I mean, that doesn't actually change how much it hurts people. We're now at the highest level in 15 years. This is the same as where we were in November 2011

Coming out of the JFC well, resources boom, we're back at that level.

It's the fourth rate rise this year. To start the year, we were 3.6 percent, and then we had rises in February, March, May, and now September, taking us to 4.6 percent. To the point you were making earlier about people hurting, those four hikes have added about $390 a month to a $600,000 mortgage.

Bryce Leske (2:07)

Really adds up, doesn't it? I saw on ABC News earlier in the week, Alan Kohler expects another two.

Alec Renehan (2:15)

This, well, it can't be this year.

Bryce Leske (2:17)

Well, like the next two times they meet, he's expecting.

Alec Renehan (2:21)

Really?

Bryce Leske (2:21)

Yeah. He said a rise again and again and again.

Alec Renehan (2:25)

Okay. Well, Alan Kohler is more hawkish than the market. To go to where the market is, they expect one more rate rise early next year, taking it to 4.85%.

ANZ of our big four banks is the most hawkish. They expect another rate rise in November. The other big banks don't expect to see another rate rise or maybe one next year. But yeah, I think there might be one more coming, I guess is kind of the sentiment at this point.

Bryce Leske (2:55)

I mean, it's not surprising. The core inflation or the CPI, the measure that the RBA looks at is not moving. So that's what they're really focusing on here. Currently 3.5%.

The measure that they, I guess, really look at though is the trimmed mean. It's at 3.6%. Now their band that they want it to be in is between two and three. So it's no surprise that they're really turning their attention to try and get it back in that band.

Alec Renehan (3:22)

Yeah, and obviously energy prices are a big driver here. Oil prices, as we speak, are at $106 a barrel. The war in Iran is ongoing. But it's not just oil. Michelle Bullock, a couple of weeks ago, was testifying in the Senate. And she spoke about how data centers are also a key driver of inflation around the world just because of how much investment is going into it, how scarce the resources and the labor required are, which is pushing prices up.

So I think, look, none of that is changing in the near term. And whether rates in Australia are 4.6%, 4.85%, or 5.1%, that's not going to stop Alphabet spending close to $200 billion trying to build data centers, or that's not going to stop the US and Iran fighting over the Strait of Hormuz. And so there is a question around how effective this blunt instrument can be. But it is the tool at their disposal, and their mandate is to get inflation under control.

The big concern, so obviously we touched on the individual concern, which is people's mortgages are getting more expensive. The economic concern more broadly is our economy is slowing. It's not doing too well at the moment.