An investment strategist appearing on ABC News' The Business this week has staked out one of the more hawkish-sounding-but-actually-dovish positions on the Australian rate cycle, arguing the Reserve Bank's freshly stamped 4.35% cash rate is the practical ceiling for the economy.
The strategist, identified on the broadcast only as Annamaria, told host David Taylor that markets entering Tuesday's RBA decision had been pricing roughly a 75% chance of a hike, and that 4.35% matched both the duration of 2024 and the five-year peak. 'Anything above this, we think is uncharted territory,' she said.
Asked whether the economy could cope above 4.35%, she was blunt. 'We don't think it can,' she said. 'We think that they will hike next week, sure, but any hike beyond that is going to be a policy error.'
The market has been pricing three more hikes including the May move, but Annamaria believes the RBA will be forced to reverse course if it follows that path. 'We think they'll have to reverse this down the track because the economy will soften too dramatically,' she said.
She added that central banks have a 'low tolerance for pain' and would step back rather than push the economy off a cliff: 'should they really see the softening starting to occur, we think they won't push ahead with further rate hikes and they will have to actually cut back.'
On the recession question, she pegged the risk as still low but rising. 'I think at the current stage we will not be entering a recession, but surely if we do have a few more cash rate hikes, the chance of that happening certainly does increase,' she said.
The most striking call in the segment was on Australian banks. With ANZ posting profit in line with expectations on the day but trading up 1% at the open before sliding nearly 1% within hours, Annamaria suggested the headline beat was lower-quality than it looked. 'The banks overall are looking quite fragile still,' she said. 'Valuations are still relatively high and we have concerns around the credit cycle coming through. If these rate hikes that are expected don't eventuate, it's going to be a hit on their net interest margin.'
She noted that NAB and Westpac had recently lifted provisioning, particularly around agribusiness, with growing recognition of AI job-loss risk now also feeding into bank credit models. ANZ chief executive Shayne Elliott had also flagged 'credit troubles' on the day.
For portfolio positioning during an inflation shock, Annamaria offered a rough sector map. Inflation winners: 'oil and gas producers, it's the CPI linked REITs, so real estate stocks and toll roads, for example.' Inflation losers: energy-intensive industrial companies with margin exposure, technology stocks with long-duration cash flows hit by higher rates, and consumer discretionary names exposed to the third-derivative impact on household budgets.
On the AI question, she said this week's reporting season had finally begun to validate the long-term thesis after Meta, Microsoft, Amazon and Alphabet all beat on cloud revenue and lifted capex guidance. Alphabet's comment that cloud revenue would have been higher with more compute was, in her view, a bullish read for picks-and-shovels data centre infrastructure.
But she stressed liquidity was still doing the heavy lifting holding markets together. 'The only thing that's keeping markets where they are is liquidity and the financial plumbing in markets currently.'