"The Reserve Bank of Australia (RBA) left interest rates at a record low of 1.5 percent at its policy meeting this month, sounding optimistic about the economy and more confident that inflation would pick up. "There remain reasonable prospects that inflation will return to around average levels over the next couple of years," Lowe said at a business dinner in Melbourne."
"Rising household debt, equivalent to 185 percent of annual disposable income, needed a close watch."
"Analysts have long suspected the RBA would be loathe to cut rates again to avoid fuelling yet more borrowing. Futures markets imply only a 12 percent chance of another policy easing by mid-2017. In his speech, Lowe also emphasised the need for stronger public finances but added that budget repair should not come at the expense of infrastructure spending."
The reason that it may be a possibility depends on what happens overseas. If things were to turn sour overseas, like a stock market collapse, or bond market collapse or even a dollar collapse, and without the ability to now lower rates , lending would most likely tighen. In this case, rates may be forced up. We have so far avioded this by placing rates at zero in 2008 so that people could still somehow afford things. An extremely artificial means to aviod a correction that was trying to take place. The zero rates allowed many the comfort of still being able to make repayments and allowed others to borrow more than they could before. A debt spree. What we have seen since is not an economic recovery, more an illusion of one. The debt pushed house prices back near where they were in 2006, some higher, most still lower. Its pushed the US stock market to record highs. We we all of a sudden have to pay billions less in interest from the higher rates that once were on stocks or bonds or property, it allows those billions to be used in stocks or property. It also allows people to borrow even more than they could before, pushing prices even higher again.
So if the US goes downhill fast, and banks are forced to tighen lending as they can no longer relax it, then it may be the end of our rate cuts, and the start of rises.
BUT, if the US does not collapse in the meantime, we will most likely see more cuts. We were told here on the forum at both the begginning of this year, and also the beggining of last year , that we will be seeing two 0.25 % cuts in both years, which is exactly what happened.
The current situation is now this. The government has embarked on a jobs buying program( unplanned infrastructure spend) as full time jobs dissappear, 45,300 in June or July, and 53,000 full time jobs gone last month. The other late occurance has been the rise in Building approvals to recent highs for Brisbane, Melbourne and Sydney. Prior to these recent record high approvals, it was looking the case where construction jobs were about to peak and go on the decline, hence the governments rushed and unplanned infrastucure spend. But now that building approvals have recently exceeded their previous highs , it should now maintain and even increase construction jobs. With the recent approvals , it shows that the peak of construction, at least for Melbourne and Sydney and possibly Brisbane, will be pushed at least until the begginning of 2018.
So with both the infrastructure spend of late, and a new rise in construction jobs thanks to building approvals, we may not be seeing the two rates cuts we did last year or the one before that. But the counter cyclical to this is more property and falling rents. Seniors and retirees or investors are getting less return on their rental properties, that also means less spending in the economy. Combined with low rates on bank returns and this is not a good thing. We are also still losing full time jobs in other sectors of the economy.
The conclusion. Its getting harder to say what will happen for now with the above underway. As for the RBA, we have heard before that there will be no more cuts, and then they cut again, and again. They speak shit, they have talked about inflation rising years ago when they started cutting. The latest four cuts saw cpi go from 2.8% to 1%, so what they have been saying will happen is not happening. If these latest increase in jobs can lift the cpi from the grave, then rates will be on hold while they see what happens.
They need to save what rate cuts are left for when residential constructions jobs peak. If these lastest jobs dont lift cpi enough, then we will be seeing another 0.25 % cut at least later in the year. Another major concern is the recent rise in mortgage delequincies in almost all states to a three year high.
Sorry I have nothing more concrete, there are currently to many variables to say for sure. We are also relying on that ponzi they call the US stock market to hold out. If she blows, or more, when she blows, rates could rise quite rapidly as lending tighens.
Bit like walking on a knifes edge, with the lovely ocean on one side, and a huge cliff fall on the other. We are tipping the scales ( fundamentals ) so far one way because the outcome is better on the ocean side than the cliff fall side. The only problem is, we are filling the ocean side with so much water that it is surging so high that its about to push us over the other side of the knifes edge, the cliff side
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