The ASX has finished higher today.
The S&P/ASX200 gained 47.30 points or 0.68% to 7,018.90.
Over the last five days, the index has gained 0.82%, but is down 5.72% for the last year to date.
Top-performing stocks in this index are Appen Ltd up 8.42% and Pendal Group Ltd up 7.48%.
The market was higher despite a dovish post-meeting statement from RBA governor Philip Lowe.
What happened with the RBA today?
The Reserve Bank of Australia has conceded that inflation spread quicker than expected, although it is still lower than in many other countries.
RBA expects inflation to be just over 3% in coming quarters, before declining over 2023. It is at this point that supply chain pressures should ease and consumption returns to normal.
"The central forecast is for underlying inflation to increase further in coming quarters to around 3.25%, before declining to around 2.75% over 2023 as the supply-side problems are resolved and consumption patterns normalise," Lowe said.
"One source of uncertainty is the persistence of the disruptions to supply chains and distribution networks and their ongoing effects on prices. It is also uncertain how consumption patterns will evolve and how this will affect the balance of supply and demand, and hence prices."
Rising inflation means rising interest rates, but not for a few months yet.
While the RBA kept rates on hold for now, and pushed back against aggressive rate hikes, it did say that it will end its bond buying this month.
"Ceasing purchases under the bond purchase program does not imply a near-term increase in interest rates," the RBA said.
"As the Board has stated previously, it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range."
The RBA stated that currently it is "too early to conclude that it is sustainably within the target band", as there are "uncertainties about how persistent the pick-up in inflation will be as supply-side problems are resolved.
"Wages growth also remains modest and it is likely to be some time yet before aggregate wages growth is at a rate consistent with inflation being sustainably at target," it says.
"The Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve."
Meanwhile Capital Economics has slated August for a rate rise.
"We will learn from tomorrow’s speech by Governor Lowe whether the Bank still believes wage growth would need to reach 3%," Capital Economics economist Marcel Thieliant said.
"We only expect that threshold to be reached towards the end of the year, but suspect that the Bank will move a bit earlier and have pencilled in the first rate hike for August, with rates ending 2023 at 1.25%."
GSFM investment strategist, Stephen Miller is calling the rise in June.
"Despite growing evidence to the contrary, the RBA had retained a central scenario that was at one end of the inflation risk continuum, despite accumulating evidence to the contrary of an abundance of upside inflation risk," Miller said.
"Crucially, wage growth is only expected to pick up gradually even if the RBA is now forecasting that 2022 will see the lowest unemployment rate in almost 50 years.
“That must be a key uncertainty."
Of inflation, Miller said, “The inflation ‘outcome’ is arguably already sufficient to allow a policy rate increase. Actual inflation at 3.5% is well above the 2-3% target zone, while trimmed mean inflation at 2.6% is at the top end of the range and is running at an annualised 3.4% in the most recent six months. Despite forecasts to the contrary, the RBA does not appear convinced that it is ‘sustainably’ within the 2-3% band again, curiously in my view, seeming to put greater emphasis on downside inflation risks.
“It is understandable that the key ‘outcome’ that will determine the RBA’s policy rate lift-off remains to be the rate of wage growth, with the RBA desiring an annual rate of wage growth around 3 per cent before contemplating any increase.”
Ernst & Young’s lead economist Joanne Masters said “The bank is now data-dependent. Next port of call is clearly the December quarter wages data on February 23. Wage growth has remained muted and narrowly-based, but even an upside surprise in the next data read is unlikely to be sufficient for the RBA to be confident enough to put a rate hike on the table this side of the new financial year.
“The RBA will also decide what to do with its balance sheet in May and have signalled that they may choose to shrink it – another contractionary move for the economy.”
On the small cap front
It was good day again for several small caps.
- Archer Materials Ltd is 12.04% higher.
- Chimeric Therapeutics Ltd is 9.52% higher.
- ClearVue Technologies Ltd is 8.96% higher.
- Radiopharm Theranostics Ltd is 8.44% higher.
- South Harz Potash Ltd is 7.41% higher.
- Imugene Limited is 6.45% higher.
- Altech Chemicals Ltd is 4.35% higher.
- Global Energy Ventures Ltd is 3.03% higher.
- Medallion Metals Ltd is 2.38% higher.
- Gascoyne Resources Ltd is 1.92% higher.
- PVW Resources NL is 6.48% higher.