The RBA specifically says it wants asset prices to rise as it joins the world’s central banks in quantitative easing. Shares and property will be in the sights of those savers holding low-yield deposits. Tim Toohey, Head of Macro and Strategy at Yarra Capital Management says the changes to the RBA’s approach to inflation targeting, interest rate management and exchange rate intervention are quite profound.
The Reserve Bank of Australia’s historic move to quantitative easing will light a fire under asset prices and force savers to take more risks in the quest for yield.
Shares will be more attractive to investors due to lower borrowing costs, a weaker exchange rate and increased incentives for banks to use $104 billion in RBA funding for small and large businesses.
Retirees and other conservative savers reliant on bank term deposits or market-linked fixed income products will face a dilemma.
They can either take more risks by moving into property, equities and other high-yielding alternatives or suffer a fall in their living standards as they adjust to lower levels of income.
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