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Cash Rate Drops from 4.25% to 3.75% - RBA May 2012 Interest Rate Decision; Reserve Bank Slashes Cash Rate by 50 Basis Points
Topic Started: 1 May 2012, 03:31 PM (5,614 Views)
genX
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I would be very surprised if the banks don't pass through at least 40bp on this one.

One to watch is ANZ. I think their carry funding has the worst duration and the biggest percentage of their book. If the AUD drops against the carry currencies (as a result of IR/FX parity) they will be losing even more on their carry funding. Shadow and Peter seem to think that the cut is already priced into AUD. We will see. I think we are back in Risk On at the moment, but it changes so fast these days I lose track. AUD is seen as a risk currency, so if we go Risk Off again, I think it will drop more.

If ANZ passes on 25bps, then I expect NAB to beat that by at least 10-15bps (less carry exposure I think), haven't looked at CBA, Westpac for a while. Can't remember if Westpac has unwound the USD carry it inherited from buying RAMS (although I think they still slurp at the US Fed's discount window trough, so maybe not).

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This will make a difference at least in the short term and probably the medium term.

With price drops resuming with a vengeance in 3-6 months time. Who knows, I could be a buyer in my lifetime yet. Assuming I still have a job at that point, that is. :(
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themoops
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raveswei
1 May 2012, 09:42 PM
Slashing rates didn't work for any country with bursting housing bubble why you think it will here?
Well that's it. In Sydney for $400k you get a piece of shit unit, or for $800k you get a piece of shit house. Who wants to spend all that and end up with a piece of shit that will very likely fall in value.

So you could end up with a piece of shit, and that wouldn't even be the floor of where you are financially if prices dropped.

Or for $500k you could get a "luxury" unit and pay $1-$2k in strata every 3 months.

I think it's all toast now, I can feel it. There's just no value. We're on to half price sales in a year or three.
stinkbug omosessuale


Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments.
Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck!
See here
Property will be 50-70% off by 2016.
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peter fraser
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zaph
1 May 2012, 07:14 PM
peter fraser
1 May 2012, 06:39 PM
You will find that the FHB numbers are pretty much back to pre GFC levels. the RBA released a graph recently - perhaps it was a percentage - I'll try to find it for you.
Peter - i know you don't do much FHB lending, but via industry and colleague info please keep us updated about how this drop changes debt demand in the next few months.
Hi zaph.

I watch the AFG actual FHB numbers and they are trending up, although i haven't posted a graph for a little while. We will have the May figures in a day or two, so if I get time.

Check out this March 2012 RBA publication - page 3 Fig 3.5 bottom left - FHB graph by value HERE

This is the actual dollar value of borrowings for FHB's. Note that they jumped during the stimulus, then settled down, but have since risen to above pre gfc peaks. Whether the dollar amount means a greater number of actual FHB is perhaps debatable, but it won't be far off.

Any expressed market opinion is my own and is not to be taken as financial advice
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genX
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themoops
1 May 2012, 10:12 PM
I think it's all toast now, I can feel it. There's just no value. We're on to half price sales in a year or three.
Go moops! Prefer the former to the latter.
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WestAussie
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genX
2 May 2012, 12:05 AM
Go moops! Prefer the former to the latter.
Nail on the head no value. It doesn't cost $500k to build a studio apartment lol or $1 mill to build a 2 bedroom.
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newjez
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So what was the justification for the 50 pts?

Are things really that bad?

Or is there an election coming up soon?
Edited by newjez, 2 May 2012, 06:38 AM.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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gun
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newjez
2 May 2012, 06:38 AM
So what was the justification for the 50 pts?

Are things really that bad?

Or is there an election coming up soon?
Don't get so upset. When the times are bad, the fiscal and monetary policies are targeted to help the debtors. As a proof, you have to only go back a few years.
Make this work for you.
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Sydneyite
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newjez
2 May 2012, 06:38 AM
So what was the justification for the 50 pts?

Are things really that bad?

Or is there an election coming up soon?
It's not "that" bad, but the RBA overestimated expected GDP growth and inflation for last year, so they set interest rates too high, excaserbating the 2 speed economy thing, currency appreciation etc. They are now fixing that error.
Edited by Sydneyite, 2 May 2012, 09:20 AM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Admin
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Playing politics with the RBA: Stephen Koukoulas

By Stephen Koukoulas
Monday, 30 April 2012

Thankfully Paul Howes, national secretary of the Australian Workers Union, and Garry Weaven, chair of Industry Funds Management, have zero influence on economic policy. Last week, both made some absurd points and claims regarding monetary policy, the inflation target, the Australian dollar and the operations of the RBA.

Both Howes and Weaven revealed the shallowness of their experience by showing little or no understanding of the critical importance of the inflation target. It is imperative that the inflation target remains in place because ongoing low inflation is the best thing policy makers can deliver if there is to be a boost to competitiveness, productivity and with those, employment and real wages.

There is also zero chance that the RBA charter is going to change, at least under this government, nor will the inflation target change, nor will there be any material changes to how the RBA works.

Howes’ and Weaven’s comments deserve criticism, as do others who say and write misguided, factually flawed or faulty economic analysis. The economy is too important for ill-informed commentary and misguided policy prescriptions.

Which brings us to the point made by an ignorant and sometimes politically biased few that the RBA now is somehow being politicised, losing its independence or being lent upon by the government.

That clearly is a fantasy.

If it were true, the only way it would show up would be in the RBA having inappropriate monetary policy settings and not achieving its inflation target. There is no other way to even vaguely support the claim of political interference or undue influence.

Is there any other way any such politicisation of the RBA board would show up?

Clearly not, and only poor quality, inexperienced and/or biased commentators trying to get some attention would suggest that the RBA is structurally flawed due to any government decision or appointment.

Let’s turn this around and look at some facts to see whether there ever has been any political influence on the RBA.

Before starting, let’s agree with the unanimous assessment that a series of monetary policy changes starting today will not have a material impact on inflation for a year or two. There is no debate about the long lags between interest rate changes and the impact on the economy.

Consider the only bad miss of the RBA in terms of its 2 to 3% target for inflation.

That error of the RBA showed up in the period from the end of 2007 to the end of 2009 when the underlying inflation rate averaged a shocking 4.0% having hit a peak of 5.0% in the September quarter of 2008.

That monetary policy error had its seeds sown during 2005 and was really compounded during 2006 and early 2007 when policy was too loose for too long. It must have been – there is no other explanation for such a bad miss on inflation.

Recall that in 2005, with mortgage rates some 50 basis points lower than where they are today, the RBA delivered just one, piddling 25 basis point rate hike having left interest rates steady at very accommodative settings right through 2004. In 2006, the year started with monetary policy still accommodative and despite the massive upswing in the terms of trade and sharp falls in unemployment, the RBA dragged the chain with just 3 hikes in the year.

Only at the very end of 2006 did the mortgage rate reach neutral; that is, roughly where it is today. Clearly, the RBA delivered easy monetary policy for a very long three year period.

It is unlikely that there was any direct political interference on the RBA over that time, but curiously, it was the Liberal Party appointed board of the RBA, including Governor Ian Macfarlane, that so badly blew the inflation target. Monetary policy was kept too easy in the period from 2005 to 2007, curiously when the Liberal Party was in office and when Prime Minister Howard and Treasurer Costello used monetary policy and interest rates in its campaigning and economic rhetoric in a way the current government is still a million miles from approaching.

By the end of 2002, every member of the RBA Board with the exception of Frank Lowy, had been a Liberal Party appointment. Mr Lowy’s term ended in December 2005 meaning that during 2006 and up to the election in 2007, every RBA board member was a Liberal Party appointee.

It was only when Glenn Stevens became governor, in September 2006, that monetary policy moved towards an appropriately tight setting. While Glenn Stevens was appointed by the Coalition, there were no other contenders for the role when Ian Macfarlane retired. To appoint anyone else would have been truly shocking.

Stevens quite forcefully delivered 5 interest rates hikes in his first 16 RBA board meetings as governor, including two in early 2008 when the financial crisis was rapidly unfolding. Finally, the RBA was acting to reign in inflation with a hugely hawkish approach. And to the credit of Glenn Stevens and the RBA, that policy approach worked with inflation back on target by the middle of 2010.

The underlying inflation rate has been 2.75% or less since the middle of 2010 and it will be probably be close to, or at a 12 year low below 2.5%, when the March quarter CPI is released on April 24.

Unemployment has also recently edged up, fiscal policy has been tight, the world economy weak, yet the 'politicised' RBA has rates at the upper end of neutral and shocked the market in the early months of 2012 by not cutting interest rates. This is despite only 3 of the 6 outside board members being appointed by the Labor Party.

And just getting back to the key point in this – if the RBA was being politicised, it would show up in monetary policy being too loose for too long and inflation building to a level above the target. The exact opposite is happening right now.

In the last 20 years, there has only been one example where monetary policy has been too easy for too long and that was in the period from 2005 to 2007 when every member of the RBA board has been appointed by the incumbent government. Look at these facts and make up your own mind about the issue of politicising the RBA and monetary policy.

Read more: http://www.propertyobserver.com.au/rba-rate-decision/playing-politics-with-the-rba-stephen-koukoulas
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WestAussie
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Alex Barton
2 May 2012, 10:58 AM
Quote:

Playing politics with the RBA: Stephen Koukoulas

Both Howes and Weaven revealed the shallowness of their experience by showing little or no understanding of the critical importance of the inflation target. It is imperative that the inflation target remains in place because ongoing low inflation is the best thing policy makers can deliver if there is to be a boost to competitiveness, productivity and with those, employment and real wages.
BZzzzzz wrong. Reference -

WW1

WW2

Its a mechanism we use to stop that happening again.

Imagine all your work, all your money, all your assets everything becoming worthless in the space of a few months. For everyone.

' boost to competitiveness, productivity and with those, employment and real wages.' is a SIDE EFFECT of this policy. The main objective is to prevent the masses standing up and saying... hey... fk you government and the world we are going to do what we want.

opinion only ;-)
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