Welcome Guest [Log In] [Register]


Reply
  • Pages:
  • 1
  • 2
RBA Reserve Bank Interest Rate Decision for August 2014?
Topic Started: 7 Jul 2014, 01:56 PM (3,182 Views)
Guest
Unregistered

Any rate cut might push up the cost of housing.

1) AUD might not go down due to inflow of foreign capital to speculate in housing.

2) Household debt will go higher and higher, however retail will be soft as any benefit from rate cut will just push up housing and increase housing speculation debt, as rocketing housing debt sucks up all capital and liquidity. Yes, your net dispensable income is lower.

3) Unemployment rate will go up due to soft retail, shrinking manufacturing sector, higher level of household debt, and unreasonable immigration intake.

4) Inflation rate will be low as it does not include housing data.

The net result will be more rate cuts, and

1) Ridiculously high housing costs (more people/immigrants, not enough construction/supply, more foreign ownership).

2) Higher unemployment rate.

These could be the worse scenarios for Australia. Until the USA starts to increase interest rates. Then the burst of housing bubble and capital flight is here.

We are left with higher unemployment rate, loss of manufacturing and skills, and economy in recession.
"REPLY WITH QUOTE" Go to top
 
Admin
Member Avatar
Administrator

Quote:
 
The 'new normal' has neutralised the RBA

Callam Pickering

The zero lower bound could become the ‘new normal’ for monetary policy but even if it doesn’t our cash rate is set to be consistently lower than we have become accustomed to during the Reserve Bank of Australia’s inflation-targeting period. But if the RBA has less room to move, the onus will fall on our state and federal governments to ensure that Australia doesn’t suffer a decade of disappointment.

Prior to the global financial crisis, conventional economic wisdom suggested that a nominal cash rate of zero per cent was a phenomenon reserved for Japan or countries suffering a severe recession. For countries in the latter camp, it was simply a temporary stop on the path to greater economic times.

But such thinking is no longer appropriate. Most of the developed world has now had seven years to get used to the zero lower bound on interest rates. Not to mention the increasingly conventional quantitative easing.

The Federal Reserve lowered rates to zero per cent -- or near enough -- in late 2008; the Bank of England in early 2009; while the inflation hawks at the European Central Bank paid a heavy price for taking too long to join their central bank peers.

But the leader of the pack is clearly the Bank of Japan, which has been living with a zero per cent nominal cash rate for the best part of 20 years.

In that regard, the Japanese economy remains as important as it ever was. Not due to trade or technology -- areas where Japan once dominated -- but because it provides a roadmap for other countries to follow and the pitfalls and mistakes to avoid.

The nasty reality is that a zero per cent nominal cash rate -- or thereabouts -- may soon be the ‘new normal’ for countries such as the United States, Britain and much of the eurozone. This was the idea laid out by American economist Lawrence Summers last year.

Summers has suggested that the slow recovery from the GFC might reflect broader structural factors that have been weighing on the US economy for years. He notes that credit bubbles and loose monetary policy were only sufficient to generate moderate economic growth throughout the 2000s.

He has also argued that the zero lower bound constrains nominal interest rates to the extent that real interest rates (nominal rates less inflation) may not be able to fall low enough to boost investment and push the economy towards full employment.

The neutral cash rate -- the rate consistent with full employment -- is declining throughout the developed world. BoE governor Mark Carney recently suggested that the neutral rate in England was around 2.5 per cent; while the outlook for the Fed suggested a neutral rate of close to 4 per cent.

Both are well down on estimates of the neutral rate prior to the GFC, but they remain estimates, and as the recovery continues to muddle along it is likely that these estimates -- particularly for the Fed -- could decline further.

So is this relevant to Australian households, businesses and our local, state and federal governments? The unfortunate answer is yes -- and there is growing evidence that the neutral rate has declined in Australia. Low rates are here to stay.

First, trend growth is showing signs of moderation. The mining boom resulted in a period of unprecedented prosperity but with our terms of trade set to decline and an ageing population, the next decade will be a far greater challenge.

The graph below, which shows annualised growth averaged over a 10-year period, highlights this recent moderation. It is particularly noticeable that trend growth has slowed to its lowest level since our last recession.

Posted Image

Over the next decade Australia’s business cycle will inevitably fluctuate around a lower mean level. This is notable since the lower the level of trend growth, the more likely it is that an economy will dip into a recession during a downturn.

In addition to our softer growth outlook, government bond yields have trended downwards since the beginning of the GFC, reflecting the weaker outlook for the Australian economy. Ten-year government bond yields are around 170 basis points below their inflation-targeting average. The market is effectively assuming that over the next decade the cash rate will average around 3.5 per cent.

Posted Image

Our cash rate currently stands at 2.5 per cent, and is negative in real terms, but I have argued recently that we may need to lower it further to foster sustained growth in household spending and business investment.

The response to looser monetary policy has been relatively mild thus far and mostly felt through residential investment. Non-mining investment has been particularly ordinary, indicating that the return on capital has declined considerably throughout the sector. In previous cycles, a 2.5 per cent cash rate would have ushered in a boom for non-mining investment.

The Australian economy faces a range of challenges over the next couple of decades but they are challenges that will be shared by other developed countries, such as the United States and Britain. The one challenge unique to Australia is the decline in our terms of trade, which may see our economy underperform compared with other developed countries over the next decade.

Australia will need forward-looking policymakers to navigate these challenges. If the neutral rate is declining then the RBA will have less ammunition to support the economy than it did during the GFC. A greater burden will fall on the shoulders of our state and federal governments, who must work to usher through reform to boost labour and multi-factor productivity growth.

A failure to do so, or the belief that the RBA will do the heavy lifting, will set Australia up for a decade of disappointment.

Read more: http://www.businessspectator.com.au/article/2014/7/14/interest-rates/new-normal-has-neutralised-rba
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
Admin
Member Avatar
Administrator

Quote:
 
RBA may be forced to cut rate further: Goldman Sachs

July 29, 2014 - 1:17PM
Jonathan Shapiro

The Reserve Bank may be forced to cut the official cash rate before the end of the year to beat back of a wall of foreign money that has driven the Australian dollar higher, according to Goldman Sachs Asset Management’s bond expert Phil Moffitt.

Moffitt, a 30 year veteran of the bond market and one of Goldman’s most senior Australian partners was speaking at the sidelines of the $935 billion asset managers’ client conference in Sydney.

He said the confluence of weak domestic growth, an expected fall in inflation as the carbon tax is discarded and the high currency was pointing towards a potential cut in the official rate cut below its current 2.50 per cent setting.

“The game plan has been the RBA to hold rates stable, and accept the currency is overvalued, in anticipation of the Fed moving [to lift US interest rates],” he said.

“But the more the Fed works to pacify market expectations of a rate rise, the stronger the local currency gets and the harder it is for the RBA to manage."

Moffitt says the Federal Reserve will be forced into hiking rates sooner than expected, which should aid the RBA’s desire for a fall in the currency.

But strong demand for Aussie dollar fixed income assets will ultimately prove too much of a force for the central bank to ignore.

A potential fall in the inflation rate later in the year could ultimately set up the RBA to act.

“They may take the opportunity later in the year with inflation coming down because of the [repeal of the] carbon tax and the soft domestic economy to cut rates. That would come at the similar time that we expect US treasury rates to rise,” he said.

The prospect of the Federal Reserve finally moving to normalise interest rates in the largest economy of the world could create a difficult path for the RBA to navigate.

But a rise in US interest rates coupled with a cut in the RBA cash rate could provide the double whammy that drives the Australian dollar down to levels desired by the central bank to aide a rebalancing of the economy.

Behind the Australian dollar’ strength is the demand from international investors for Australian dollar fixed income assets as rates are held low throughout the world.

This is being driven by a range of investors from high net worth clients of private banks to sovereign wealth managers.

The demand is showing no signs of slowing and even if Australian 10 year bond rates fell to 3 per cent which he predicted as a possibility, it would still provide an attractive place for foreign capital.

Read more: http://www.smh.com.au/business/markets/currencies/rba-may-be-forced-to-cut-rate-further-goldman-sachs-20140729-zxzau.html
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
Blondie girl
Member Avatar


That damn $.



Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$
It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged
Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do.
Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
Profile "REPLY WITH QUOTE" Go to top
 
newjez
Member Avatar


Guest
11 Jul 2014, 11:51 PM
Any rate cut might push up the cost of housing.

1) AUD might not go down due to inflow of foreign capital to speculate in housing.

2) Household debt will go higher and higher, however retail will be soft as any benefit from rate cut will just push up housing and increase housing speculation debt, as rocketing housing debt sucks up all capital and liquidity. Yes, your net dispensable income is lower.

3) Unemployment rate will go up due to soft retail, shrinking manufacturing sector, higher level of household debt, and unreasonable immigration intake.

4) Inflation rate will be low as it does not include housing data.

The net result will be more rate cuts, and

1) Ridiculously high housing costs (more people/immigrants, not enough construction/supply, more foreign ownership).

2) Higher unemployment rate.

These could be the worse scenarios for Australia. Until the USA starts to increase interest rates. Then the burst of housing bubble and capital flight is here.

We are left with higher unemployment rate, loss of manufacturing and skills, and economy in recession.
1. The AUD might not go down until the US starts to raise rates.

2/3. Rate cuts cause unemployment to rise? - I think it's back to economics 101.

4. Rate cuts lower inflation? See 2/3.

Capital flight is a worry, but all it means is the AUD will fall faster. Shock in the short term, maybe a brief recession. But healthier in the long term. Exchange rate inflation is a one off cost. I see the next year or two as a period of necessary but benefitial adjustment for Australia.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
Profile "REPLY WITH QUOTE" Go to top
 
Gossamer
Member Avatar
44th most prolific poster on APF

Only 12 votes? This forum doesn't have enough active members.
Common sense is a curse - those who have it need to suffer dealing with those who don't have it.

APF idiot list
Nelson
Black Panther
Profile "REPLY WITH QUOTE" Go to top
 
Shadow
Member Avatar
Evil Mouzealot Specufestor

Gossamer
29 Jul 2014, 07:57 PM
Only 12 votes? This forum doesn't have enough active members.
I rarely bother voting... same question gets asked every month and the result is usually no change. Gets a bit boring.

But I have just now voted 'no change' on this one... so 13 votes now.
Edited by Shadow, 29 Jul 2014, 08:30 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
Profile "REPLY WITH QUOTE" Go to top
 
o2sd
Default APF Avatar


Gossamer
29 Jul 2014, 07:57 PM
Only 12 votes? This forum doesn't have enough active members.
I wonder why .... :hmm:
Profile "REPLY WITH QUOTE" Go to top
 
Admin
Member Avatar
Administrator

Quote:
 
How long will this cheap money last?

July 30, 2014 - 12:15AM
Clancy Yeates

Posted Image

The Reserve Bank has not moved interest rates for almost a year, but that hasn't stopped banks slashing the cost of fixed rate mortgages.

Borrowers can now lock in an interest rate of less than 5 per cent for up to five years, after Commonwealth Bank, National Australia Bank, Westpac all cut fixed rates last week. Standard variable rates are also close to or below 5 per cent once the discounts that banks give most customers are taken into account.

Without doubt, it is very cheap money. But how long can variable rates stay this low?

It would be extremely unusual for rates to remain at these levels for five years - which is the average lifespan for a mortgage before people sell their home, repay the loan, or refinance. If you'd like to make your repayments predictable, that can make fixing a good option.

However, taking out fixed-rate mortgage also involves some risks. So before rushing to lock in a rate, what should borrowers consider?

The big advantage of a fixed rate home loan is certainty. If your budget is tight and even a small rise in interest rates would be uncomfortable, fixing while rates are at record lows can make good sense.

The downside is that fixed loans are, by definition, more rigid.

Variable rate loans allow borrowers to make repayments ahead of schedule, for instance. This means you pay down your debt more quickly and pay less interest overall. Fixed rate loans generally don't allow this.

There can also be break costs if you change your mind and want to switch to a variable rate loan. But the good news is these would only apply if interest rates fell further - and any such movement would probably be small.

Finally, there the risk that rates fall even further.

Read more: http://www.smh.com.au/money/borrowing/how-long-will-this-cheap-money-last-20140724-zwabc.html
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
Admin
Member Avatar
Administrator

Quote:
 
RBA expected to keep rates on hold, next movement up: HSBC

Jennifer Duke | 1 August 2014

A new report from HSBC Global Research’s chief economist Peter Bloxham said that the RBA is expected to keep rates on hold next week with the next movement expected to be up.

While this has been expected for the last couple of months, Bloxham made an interesting observation of what must be watched in the next statement from RBA governor Glenn Stevens.

It’s all in the wording.

“A key thing to watch out for will be a possible language change in the statements,” Bloxham explained.

“For the past six months, the RBA has been stating that a 'period of stability' in rates was likely; however, with rates now having been stable for almost a year that language may change, simply because there has already been a long period of stable rates.”

He noted that Stevens had warned about a forthcoming language change, but said that it was not necessarily an indication that rate hikes were being considered.

Next week, Bloxham expects the RBA to reiterated that the Australian dollar remains higher than they would like it to be, and to revise down CPI forecasts.

Sentiment was also noted to be improving.

Read more: http://www.propertyobserver.com.au/financing/interest-rates/34022-rba-expected-to-keep-rates-on-hold-next-movement-up-hsbc.html
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
1 user reading this topic (1 Guest and 0 Anonymous)
ZetaBoards - Free Forum Hosting
Free Forums with no limits on posts or members.
Go to Next Page
« Previous Topic · Australian Property Forum · Next Topic »
Reply
  • Pages:
  • 1
  • 2



Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ

Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy