Despite the official cash rate being kept on hold, investors still relying on bank deposits should reconsider their approach, says AMP Capital.
According to AMP Capital chief economist and head of investment strategy, Shane Oliver, the Reserve Bank of Australia (RBA) is likely to cut rates again this year, reinforcing the need for investors to exit bank deposits.
Investors need to consider what is more important: capital stability or decent and stable income flows, Mr Oliver said.
If the RBA retains its easing bias, and cuts the cash rate later this year, Mr Oliver believes, "bank term deposits are likely to remain unattractive and could fall even further”.
Mr Oliver argued that growth assets which provide decent yields will remain considerably more attractive.
“This includes commercial property and infrastructure but also Australian shares which continue to offer much higher income yields – and more stable income flows – than bank term deposits,” he said.
Mr Oliver also noted that although the Australian dollar jumped slightly on Tuesday, the currency is likely to depreciate further.
“So it makes sense to continue to have a greater exposure towards unhedged international assets than would have been the case say a decade ago when the trend in the Australian dollar was up,” he said.
Mr Oliver said that Australia's poor business investment outlook, high Australian dollar, weakening commodity prices, and a likely loss of momentum in housing prices will warrant further monetary easing at some point before year end.
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