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Will the SVB collapse finally stop the RBA cash rate rises?


The disastrous collapse of Silicon Valley Bank could have a surprising upside for mortgage holders in Australia.

Silicon Valley Bank's (SVB) sudden collapse sent shock waves through the market last Friday.

The 16th largest bank, which catered to US tech, suddenly went under. This saw Australia's share market plunge 2% on Tuesday, with the banks and miners among the heavily sold off.

But it could actually have a surprising upside for Aussies.

Australian government bond yields sank on speculation that the Reserve Bank of Australia (RBA) won't need to lift rates as high as first anticipated.

The yield on 3-year bonds fell by as much as 15 basis points during early trading on Monday, to their lowest levels since October.

This suggests that the bond market is predicting our rates won't rise again.

Does this mean central banks are done lifting rates?

While the bond market is predicting a slowdown, AMP Capital's chief economist Dr Shane Oliver predicts the RBA and other central banks are already looking to slow down rate hikes.

This is because, in his view, inflation is peaking.

"If we are right and inflation will fall going forward, albeit with bumps along the way, then central banks are at or near the top and will have more flexibility to respond to financial crises like the issues now in the US," he said in his latest economic note.

Separate research from Finder found that issues outside of SVB were already weighing on whether or not the RBA needs to hike again in April.

After the RBA lifted rates 10 times in a row, 15 out of 42 experts interviewed said we should not change our rates, as inflation might have already peaked.

Mark Crosby from Monash University is 1 of the 15 who highlighted that "indications are that inflation is falling in most peer economies, and energy and supply chain pressures appear to be lessening".

Are Aussie banks in any danger?

Even with investors selling down bank shares, it is unlikely that Australia's banks will face the same issues.

This is because our banks carry less risk.

In a post-global financial crisis world, Australia's banks are required to have much stronger capital buffers.

It's also worth noting that US banks fail quite often.

There were 8 failures between 2018 and 2020.

"However, it will take a while to determine the full impact and for the dust to settle," Dr Oliver added.

"And either way, banks are likely to see a tougher environment ahead as growth slows and higher rates cause more financial stress for borrowers."

What does all this mean for investors?

Unfortunately, SVB's collapse will increase the risk for investors.

But the SVB only really impacts a select few shares and ETFs, at least in the short term.

According to Dr Oliver, shares will face some downside risks, especially for investors in the US, which is facing a few issues all at once.

"Non-US shares are likely to outperform US shares as they are trading on lower price-to-earnings multiples and have a lower exposure to the tech sector. This includes the Australian share market," he said.

Although even with short-term hiccups, Dr Oliver thinks investors should continue to stick to their investment thesis.

"While times like these can be stressful, for superannuation members and most investors the best approach is to stick to basic investment principles," the economist concluded.

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