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RBA Reserve Bank Interest Rate Decision for November 2014?
Increase by 25 basis points 2 (13.3%)
Hold cash rate steady at 2.5% 11 (73.3%)
Decrease by 25 basis points 2 (13.3%)
Total Votes: 15
RBA Reserve Bank Interest Rate Decision for November 2014?; RBA must bite the bullet on housing and lift rates
Topic Started: 7 Oct 2014, 03:01 PM (2,791 Views)
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RBA must ‘bite the bullet’ on housing and lift rates, senior banker says

Christopher Joye

Sitting in a palatial Sydney office with a senior executive from one of Australia’s biggest banks, my eyes burst open wide in surprise as he blindsides me with his solution to the sunburnt country’s burgeoning housing bubble.

“The Reserve Bank should simply bite the bullet and lift interest rates by 25 basis points to send a shot across the bows of borrowers to remind them that the lowest home loan costs in history cannot stay with us forever,” the banker says.

He adds that “none of our business borrowers are complaining about interest rates right now – it is one of the lowest priorities when we survey them”. The same observation applies to his residential mortgage customers, who the banker worries presume that the abnormally rapid 7 per cent annual capital appreciation over the past three decades will persist into the future.

One of Australia’s top bankers calling for rate hikes! I was giddy with excitement at the sensational headlines – especially as I had argued the same logic myself in these pages only a week ago.. I begged the banker in question to consider going “on the record” – he responded that he’d be guided by his media adviser, who sat nearby with a puzzled expression on his face. The probabilities suddenly plummeted.

“Think of the credibility gains your bank would garner with such an authentic and bold declaration about the inherently unsustainable nature of our ‘crisis-level’ borrowing rates,” I said.

His spinner, of course, prevailed. I was told that, on reflection, the banker did not want to put his name to the remarks. But they have nevertheless helped shape an important idea.

He had made the case for a symbolic rate increase in the context of a discussion we were having on the Reserve Bank of Australia’s belated acceptance that there are problems bubbling up across Australia’s $5 trillion housing market.

We’ve had the lowest interest rates in history for over a year. And banks have been independently pushing rates lower again since September 2013 by about 15 basis points according to the RBA’s latest estimates, as their funding costs have fallen.

Two years ago, Stevens cautioned that “if the incentive to borrow is powerful and persistent enough, people will find a way to do it, even if that means the associated activity migrating beyond the regulatory perimeter”. Hear, hear.

Yet since February, the RBA has been telling borrowers to get comfortable with “a period of stability in interest rates”. With local asset price imbalances building and global market forces shoving the currency down as low as US86¢, the RBA should consider recalibrating this stance.

A single rate increase either before or immediately after Christmas would be a clear and responsible signal to investors that the unusually cheap borrowing costs they now enjoy are likely a temporary phenomenon.

This would have no material impact on the real economy other than to dampen the speculative exuberance propelling property prices skyward.

Read more: http://www.afr.com/f/free/blogs/christopher_joye/banker_must_bite_says_bullet_senior_ueFMK00Npcft5FR85HTK2N
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Gossamer
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You posted the poll after the RBA announcement.
Common sense is a curse - those who have it need to suffer dealing with those who don't have it.

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Nelson
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bundy
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I think the poll is for the next RBA meeting (November 4, 2014).
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The next move is indeed down. Housing aside (cannot lower rates without “macro-prudential), (a) the coming loss in national income (dividends, royalties, and taxes) via lower coal prices, IO and the like, means that it is imperative that Australia lowers relative production costs (i.e. currency) otherwise it would result in a massive blowout in its trade-balance (assume it will be a deficit – its just question how large?); (b) ignoring savers (as every Central Banker has done recently) in a period of lower incomes, a trading country such as Australia will experience rising living costs given that we still import a lot of essentials. Although a lower dollar will still hurt (hard?), lower interest rates mitigate higher living-costs, whom, lets face it, many have borrowed to the hilt; and (c) lower rates (especially fixed) usual induce significant infrastructure, productivity and manufacuring investment. Not sure how effective this will be this time? Given we have or will lose an enormous amount of our manufacturing base, fabrication for the LNG and mining industries will largely cease (big employer), and arguably land prices are still too high in and around capital cities to induce residential investment.

In either case the RBA will have to reverse the carry trade, given whats happen to the Yen (last week!), the Euro is falling quickly and the Chinese will make sure the Yuan matches that of Japan. In my mind there is a possibility that we could be in a situation whereby received IO prices continue to fall substantially – and yet the AUD rebounds back into the 90′s, even above parity for a period!!!

The RBA have to drop the “markets are always right” mantra, simply because given every other currency is now being actively manipulated with increasing urgency – the AUD (one of the few AAA rated, and the fifth most traded currency let us not forget) could soon be the recipient of some very unwanted interest. Realistically Australian official interest rates have to match those in the Eurozone (~0.25%) to give us some chance.
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stinkbug
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No change until at least mid next year unless some major event occurs. If we keep muddling along as we are rates will stay on hold.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Bond
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The RBA is in a difficult position.

With a government bent on fiscal rectitude and household sector loaded with debt it has little choice but keep goosing debt with ‘bait rates’.

The alternative to solving the problem with increasing levels of debt is something like QE for Struggle Street / People but the chances of any of our pollies or policy makers considering something that radical or sensible are close to zip.

At least until they have driven us into a deflationary bust and have no choice.

The challenge for the RBA is that the rise of foreign investors, SMSFs and our own fevered investors means that they are having trouble goosing the ‘normal community’ but not the speculators.

And that is being kind because it is clear that the RBA were quite happy goosing the speculators until it was clear that the speculators have evolved into a more virulent strain.

The RBA should be calling for regulations – FIRB, NG for new builds directed to cutting off demand from the speculators but people are kidding themselves if they think we can have our cake and it.

Low rates AND a change in attitude to speculation on property.

The attitude towards housing speculation is driven by the mispricing of risk. People are driven towards risky investments because of the low rates.

People who think you can drive down rates and not generate tumours across the economy are dreaming.

The solution is clear.

Some immediate regulation to cut the demand from speculators.

Immediate modest rise in interest rates to send a more general message about mispriced risk

Support from some form of QE for the People should a more general trend towards deleveraging emerge at rate that is problematic.
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stinkbug
7 Oct 2014, 08:23 PM
No change until at least mid next year unless some major event occurs. If we keep muddling along as we are rates will stay on hold.
Stinky, you never have anything interesting to say about Interest rates, same old shit, why bother.

Intersst rates are more likely to be lower than higher next year. Its all riding on the dollar now and maybe job losses too.

The US taper is over, there will be no interest rate rises their. Our dollar and gold will start to rise again, the fed will continue to sell gold shorts in an attempt to keep the gold price down.

While I could argue, that the demise of China and iron ore prices will push our dollar down, which is logical and would appear the ztrongest argument and what I would even expect , the fact is the US is not really recovering, just as the Euro is not despite all the bullshit claiming otherwise. Their dollar is an absolute worthless piece of shit. And while on one hand I could argue ours should be worth more, with our house prices and wages in such a bubble, Im not so sure. So to be honest, I have no idea of where they should really be in comparison to one another because things are a bit conflicting and confusing with all the bullshit going on.

The US will see another QE before it sees interest rates rises.
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Rates on hold until mid-2015: experts

October 7, 2014 - 4:11PM
Toby Johnstone

The Reserve Bank has made no secret that it is watching house prices closely but it is becoming clear to economists that the board will not use the cash rate to cool things down this year.

On Tuesday the RBA left the official cash rate on hold at 2.5 per cent for the 14th consecutive month.

Australia is now experiencing the longest period of interest rate stability in more than a decade, and it looks set to continue.

All 28 experts surveyed by mortgage comparison website finder.com.au are now expecting the cash rate to start rising next year, most probably in June. Six months ago almost half of the respondents (five out of 11) expected the cash rate to start rising this year.

The senior economist for the Domain Group, Dr Andrew Wilson, said the RBA was unlikely to move rates while key economic data remained "mixed".

But Dr Wilson did note that despite rates staying on hold, finance was becoming cheaper.

Read more: http://smh.domain.com.au/real-estate-news/rates-on-hold-until-mid2015-experts-20141007-10rdn3.html
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Gossamer
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bundy
7 Oct 2014, 07:49 PM
I think the poll is for the next RBA meeting (November 4, 2014).
Oops! :bh:
Common sense is a curse - those who have it need to suffer dealing with those who don't have it.

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Nelson
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stinkbug
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7 Oct 2014, 09:07 PM
Stinky, you never have anything interesting to say about Interest rates, same old shit, why bother.

Because wild, unsubstantiated predictions aren't my thing.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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