Cash Rates to Squeeze Big Bank Profits: VanEck
The Reserve Bank of Australia‘s decision to raise the benchmark rate by 25 basis points to 0.35% will put the big four banks under further pressure in the coming month, according to VanEck.
VanEck’s head of investment and capital markets, Russel Chesler, said that was because higher rates would reduce banks’ income from mortgages and bad debts due to higher borrowing costs.
“The prospect has already shaken confidence in the real estate market; Auction clearance rates in Sydney fell over the weekend, and this weakness is likely to spread to other capitals as higher interest rates ripple through the wider property market and the The prospect of lower house prices through 2022 is turning people away,” Chesler said.
Chesler predicted interest rates will rise another 25 basis points at the June RBA meeting and reach 1.75% to 2.25% by the end of the year.
“With official interest rates expected to end the year between 1.75% and 2.25%, this should push variable interest rates on mortgages over 4%, adding hundreds of dollars a month. to monthly repayments given the huge size of Australian mortgages,” he said.
“In this environment, with runaway inflation and rising interest rates, companies, including cyclical stocks, that can raise prices and keep customers at the same time are likely to outperform,” he said. he declares.
Cyclical stocks have weathered rising costs better than growth stocks, Chesler said, because they relied less on future earnings potential for their current valuations.
“As for other sectors, gold stocks and infrastructure stocks (whose earnings are often linked to inflation) should do relatively well. Both are defensive and more resilient to equity market volatility. and with the high levels of market volatility we are seeing this year, investors are looking for safe havens.