will be challenged over the coming months, warned Morgan Stanley, as the delayed transmission of the Reserve Bank’s rapid-fire interest rate rises sneaks up on corporate profits.P/ASX 200 has rallied more than 10 per cent since the start of October amid growing evidence that the aggressive policy tightening by central banks is starting to have the desired effect of cooling inflation.Morgan Stanley expects sharper corrections in unemployment and inflation than consensus and the RBA.
Morgan Stanley expects the RBA to keep raising interest rates by 0.25 percentage points each month until it gets the cash rate to a peak of 3.6 per cent in April. The cash rate is 2.85 per cent. “The tipping point draws near,” Mr Nicol said. “We see mid-single digit declines in earnings levels [versus] consensus expecting flat to negative earnings.”
The broker expects this will help the dollar bloc economies including Australia and New Zealand avoid a recession, while also supporting investors’ risk appetite.