100% chance of .5% decrease in rates in March

[Nth Brisbanite]

I've been keeping an eye on the below link which is predicting that interest rates will come down by another .5% in March.

I'm looking forward to Nirvana - more cash flow positive properties in my portfolio.

http://www.asx.com.au/sfe/targetratetracker.htm

 

[Ajax]

And looking good for another cut in April by between 25 and 50 basis points

http://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf

 

[Nth Brisbanite]

Ajax, that's even better news. Before all these rate cuts, I was struggling to hold on to my properties. What a turnaround!! I'm sleeping very soundly now.

 

[essence]

And looking good for another cut in April by between 25 and 50 basis points

http://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf

With the passage of $42bn stimulus we are looking at 1-2 months small cuts (unlikely though that April is going to be less than 0.5%).

$12bn personal handout is going to be absorbed pretty quck, then there will be some short-lasting effect of insulation handout. As banks stated their intention to pocket money from rate cuts -

After that, unless there will be another forkout of money - back to larger cuts until rates reach 0%.

After that I would be seriously amused if Government will not start to twist Bank's hands to pass on everything they pocketed so far - including "independent of RBA" rate hikes.

So far, as consumer and business confidence goes the only thing shining is property. But to pull economy out of the ditch we need at least 50% rise in house values before bruised builders start thinking about building again.

So, we have seen nothing yet. Excitement only begins.

 

[Nth Brisbanite]

After that, unless there will be another forkout of money - back to larger cuts until rates reach 0%.

So, we have seen nothing yet. Excitement only begins.

I wish you were right!! My properties will be seriously cash flow positive.

I doubt whether we will ever get to 0%. 2% yes, but 0%, no.

 

[sash]

The US is near 0%....UK at 1.5%...will be interesting...if we hit below 2%....

The unemployment numbers have crept from 4.5% to 4.8%....if we hit over 5.1% next month...the better the chances of us hitting under 2%.

I also feel that we have not seen any the Commercial failures yet? There are bound to be some in the pipeline as banks squeeze credit on this front!

I wish you were right!! My properties will be seriously cash flow positive.

I doubt whether we will ever get to 0%. 2% yes, but 0%, no.

 

[keithj]

I've been keeping an eye on the below link which is predicting that interest rates will come down by another .5% in March.

Two of the big four have strongly suggested that they won't be passing on all of the next RBA cuts.

 

[Nth Brisbanite]

Two of the big four have strongly suggested that they won't be passing on all of the next RBA cuts.

Has anyone any thoughts on how much the banks will reduce the forecast RBA cut? I'll still be happy if it the banks cut their rates by .4%.

 

[AUSPROP...]

I'd like to set up a creditcard company. borrow it at 0%, multiply it and lend it at 21%

 

[investor_eddie]

Two of the big four have strongly suggested that they won't be passing on all of the next RBA cuts.

Which two?

 

[Nth Brisbanite]

Which two?

CBA is one of the ones who have hinted that they won't pass on in full the next cut.

 

[keithj]

Which two?

CBA said it last week when they released their results & NAB (i think)....
CBA says their cost of funding has been rising by 2bps per month.

 

[buzzlightyear]

Which two?

Any two ultimately means four.

 

[steveadl]

Any two ultimately means four.

With the amount of cuts we've had over the last few months, it's hard for me to get annoyed about them clawing back a little.

If they're funding costs have continued to be pressured, and if clawing back a little keeps them as stronger financial institutions willing to lend me money, then so be it. Much rather be jacked .20% overall than have the sort of situation of US lending - I'll take our banks over theirs anyday!

If our banking industry is stronger as a result, then let them have their little extra margin.

 

[Rob Williams]

I agree with Steve. It's easy to get caught up in the "it's all about me" mentality, but there is a bigger picture to consider. It's also a longer term and sustainable picture.

 

[willair]

It's going to be interesting to see what happens not shorterm but longterm one- two years down the road,18 months ago i was getting above 7% for any money spread over several banks,when talking to a person at the bank yesterday about what the the shorterm investment rates are all they said it changes each day,the NAB was about 4.25%
CBA was about the same,i did happen to ask how low lending rates will go
all the Lady said the next rate cut may well not even be passed on in full,,no matter what Mr Swan thinks will happen, plus she said a lot of people are worried about their employment within the banking system as they the banks also have margins to keep everything above as some do not have the full funding to keep everything above the waterlines for this year..imho..willair..

 

[chilliaa]

I dont think interest rates can go as low as some of you are thinking.
Look at bank borrowing costs:
70 basis points to cover the cost of the government guarantee.
60-70 basis points to cover risk premium over government debt.
140 basis points to cover bank profit premium (this is a minimum)

So even if RBA rates reach zero, the absolute minimum variable interest rate is around 2.8% and in actuality this rate would be higher, because as RBA rates approach zero, the market would demand a higher risk premium (Australia is not the US, hence its not the reserve currency of the world).

I would be VERY careful of assuming 100% pass down of future interest rate cuts. I would also be VERY careful of extrapolating future RBA interest rate cuts themselves, now that the government has passed its $40something billion stimulus package, i have a strong feeling the RBA is going to be much more hesitant in making large cuts to official interest rates.

 

[Ajax]

With RBA rates at current 3.25% (and my lenders rates between 5.14% and 5.64%) I am cashflow neutral.

This is after interest and all other costs (strata levies/rates/agents commission/repairs/water and sewerage) of over $15k are taken out.

Any more rate cuts create pure profit for me (depending on whether my tenants are still paying the rent).

Big ad in Sydney Morning Herald today encouraging first home buyers to access the $14,000 or $21,000 FHOG.

Can't help thinking these First Home buyers are being set up for a fall when interest rates start increasing again (maybe in 12 months time).

The good news for investors is struggling first home owners being hit by higher interest rates will be a political hot potato. Can't see the Reserve Bank wanting to hurt first home owners with interest rates that increase rapidly in a few years time.

Were bank variable rates to climb from say 4.5% (a variable rate which I think we will shortly see) to 9% in a few years time you would have enormous dissent amongst many first home owners.

 

[keithj]

I dont think interest rates can go as low as some of you are thinking.
Look at bank borrowing costs:
70 basis points to cover the cost of the government guarantee.
60-70 basis points to cover risk premium over government debt.
140 basis points to cover bank profit premium (this is a minimum)

Doesn't quite add up - current RBA rate is 3.25%, big 4 discounted var rate is 5%-5.2%.... less than 2% difference.

I would be VERY careful of assuming 100% pass down of future interest rate cuts. I would also be VERY careful of extrapolating future RBA interest rate cuts themselves, now that the government has passed its $40something billion stimulus package, i have a strong feeling the RBA is going to be much more hesitant in making large cuts to official interest rates.

Agreed. Recently there's been highly conflicting macro data released - maybe the RBA will wait & see, maybe they'll keep some powder dry, maybe they feel it's expansionary enough & are keeping future potential high inflation in mind, maybe we're about to get the anecdotal big lay-offs showing up in the data.... things are way to uncertain for me ATM .

 

[steveadl]

You raise a good point Ajax. Many FHB's will be burnt once rates start rising again (even if it's not too fast). The solution? People need to examine their options, plan ahead, budget for rises, and just generally THINK.

Will that happen en mass? Doubt it. Sad reality is many FHB's will be crunched by increasing rates at some point in the future.