50 bp cut at april RBA meeting

[sash]

Maybe not immediately as they are technically decoupled. But the more rates cuts there are ...the more it plays on the psychology of how long the economies of the world will be down.

By the way....my money is on seeing the the 3,4,and 5 year rates moving down within in the next 6 months. Why....because we are only starting to feel the pain in Australia.....there is now a common view among economists and most Central banks the revcovery will not start till late 2010/ early 2011!

That in turn should keep rates at bay for further year or so....that in turn should affect the 3-5year rates...with the 3 year one being the most volatile thus potentially offering the best rates in the future.

My way of thinking at least!....time will tell as always!

I am pretty sure that the RBA cash rate would have no impact on 3+ year term mortgage rate or bond rate. For example today markets are pricing a 50 point cut and the 10 year bond is still at 4.35% yield.
It is quite interesting what is happening in UK where CB start the quantitative easing and I believe the purchase of long term bond from the CB in UK is driving the bond rate down, even below the german Tbond in the last few days. this would have definetly an impact on fix rate mortgage rate in UK

 

[AUSPROP...]

there is now a common view among economists and most Central banks the revcovery will not start till late 2010/ early 2011!

I think they are just saying these dates because it is some time a couple of years away.... I bet it's a rolling "cuppla years".

before we start thinking of recovery, we need to get thru the US govt debt problems, the painful transition of wealth from US to China, trade imbalances, who will fund what - there are so many problems on the horizon it's hard to see the way forward. My biggest fear is that Aus is only just starting to feel the ripples and Krudd has already raided the cookie jar. Soon he'll be looking behind the couch for loose change, failing that he will come to you and I looking for some cash

Other than affordable housing I am becoming increasingly bearish. OMG... the D&Gers have got me.

 

[sash]

Oh no....another "Chicken Little"....lets make some KFC!!

On a more serious note....yeah I agree pretty hard to know what is going on at the moment. Whilst I am pessimistic in the very short term....I am reasonably positive 12-18 mths out.

Why? ....because history shows that govt. always overshoot on the level of stimulus (at least since Central Banks were developed)....by the time we realise that this stimulus is coming in like a Tsunami...we might be in hyper inflation.

I am more worried about the aftermath of rapid rate rises and the carnage that will cause!!!

I could ride this one out due to low rates and a CF+ portfolio paying me a median salary. I will fix rates....but if they come off when they hit say 10%...then I could be in trouble. Thus why I am being careful to tier how mich debt becomes variable in the next few years. You are okay if you have a smallish debt....but once you are above say $1.5m....that could be painful if you repayments go from say $75k (5%) to $145k (9%)!

I think they are just saying these dates because it is some time a couple of years away.... I bet it's a rolling "cuppla years".

Other than affordable housing I am becoming increasingly bearish. OMG... the D&Gers have got me.

 

[boz]

Maybe not immediately as they are technically decoupled. But the more rates cuts there are ...the more it plays on the psychology of how long the economies of the world will be down.

By the way....my money is on seeing the the 3,4,and 5 year rates moving down within in the next 6 months. Why....because we are only starting to feel the pain in Australia.....there is now a common view among economists and most Central banks the revcovery will not start till late 2010/ early 2011!

That in turn should keep rates at bay for further year or so....that in turn should affect the 3-5year rates...with the 3 year one being the most volatile thus potentially offering the best rates in the future.

My way of thinking at least!....time will tell as always!

I mostly agree with you and once interest rates are down for a while banks will not be much bothered about looking after their deposit and they'll drop interest rates on any short term bank deposit and if they get short of cash they'll just beg at RBA for more money in exchange of securities (or use the gov. bond guarantee to get overseas funding), once deposit interest goes lower investor will look at longer term and that will bring down long term interest as well. The big factor in play (and dodgy bit) is that government is increasing the amount of bonds in the market with the budget deficit and like it happened in the last month that increase the yield on bonds (supply increase). So that mean that one side you get the gov money and on the other side business and borrowers pay more for medium/long term loans. My view is that those stimulus grants don't have much effect even in the medium term in an economy like australia that just doesn't have enough wealth (real money) to keep the current australian standard of life. As I said several time, the sheet is just too smal and the size of the economy and/or australian standard of living will have to adapt to the australian wealth(real money).

EDIT: But I can see the economic advisor of the Government that see a way out of this in buying time while productivity in australia grow enough to expand the wealth to cover the present size of the economy, and also time will reduce the size of the economy by devaluating the AU$. In my opinion this is very stupid as it would be much better to keep the size of the economy at the right level.

 

[Aaron Sice]

i say no rate cut.

no rate cut will make our dollar rise, which will make other countries stand up and take notice.

it's like hold two pair in a poker game - it's a good hand but it's not guaranteed a win.

and the flops only just been laid out and we're already "all in".

 

[Rob Williams]

i say no rate cut.

no rate cut will make our dollar rise, which will make other countries stand up and take notice.

it's like hold two pair in a poker game - it's a good hand but it's not guaranteed a win.

and the flops only just been laid out and we're already "all in".

What you say makes a lot of sense. That's why I don't think this will happen. It makes too much sense and might actually be the best option.

 

[boz]

i say no rate cut.

no rate cut will make our dollar rise, which will make other countries stand up and take notice.

it's like hold two pair in a poker game - it's a good hand but it's not guaranteed a win.

and the flops only just been laid out and we're already "all in".

It doesn't work anymore in this maret, a couple of weeks ago NZ cut rate by 0.5% to 3% and the NZ$ gain 4 cent against Australia (no rate cut). The thing is that often market see rate cut as getting closer to the point of recovery and a fact that central bank see no risk (inflation) in reducing rate and that bring confidence in the country. Pretty much this GFC scrambled all the rules.

 

[santaslayer]

50bp if they decide to cut. Anything under 50 will do little imo.

 

[Ms Jade]

50bp if they decide to cut. Anything under 50 will do little imo.

Agreed.

(inane added words)

 

[buzzlightyear]

I honestly have no clues. I think I have been wrong for the past four times the RBA have made a decision on the cash rates.

But if their rationale last time (only slightly if you look at their meeting minutes) was to wait and see how the rate reductions were impacting the economy, in addition to knowing that the GDP growth rate was negative, if not the actual number, then I am not sure another month will make a huge difference. If it does, then, they should have cut last time.

But in answering this question, I am too wedded/biased for the biggest cut possible. The rate reductions over the past 6 months have had a 6 figure impact on my cashflow, so I am too financially and emotionally connected to wanting a decrease. That in all honesty, I suspect sways my argument to a rate cut.

Any how about another 1% cut

 

[quintets]

on hold

i say no rate cut.

no rate cut will make our dollar rise, which will make other countries stand up and take notice.

it's like hold two pair in a poker game - it's a good hand but it's not guaranteed a win.

and the flops only just been laid out and we're already "all in".

If the RBA doesn't cut, the other countries will look at Australia and ask "What do they know that we don't know?"

The RBA has HARD data that the economy contracted in the December quarter. That was issued the day after the March announcement. Then on 10 Mar, the World Bank says the world economy is going to contract 1%. Then today, the IMF says the world economy is going to contract .5%-1%. Surely, a cut would prove a shield to the economy.

I agree with several posters that the rate cut has to be PASSED ON and taken advantage of, to make it useful. Seeing as the banks have been slow to pass on the cuts to commercial lending rates, I daresay the effects of the cuts to the business community haven't had any time to work it's way through the economy.

I'm in a relatively secure job and I'm happy for the improvement to my cashflow on my IP and the PPOR, but I'm not rushing out to spend right now. Things are quick to fall and slow to rebuild. I think the RBA needs to see a bit more data.

It's still to early to say, but I'm still leaning towards the RBA keeping the powder dry for at least April. We've got 1 1/2 weeks to go and that's a LOOOONG time.

Jireh

 

[danwatto]

I was wrong last time which makes me unsure what the hell GS is going to do this time.

I say 0.5-0.75 because it's overdue from last time after the GDP figures came out.

However it would be nice to see it again the month after, I'm being selfish again

 

[BayView]

I'm saying a .50% cut.

Why?

Because you become what you think about most. (Napoleon Hill).

 

[daniellee]

No rate cut or 0.25% at most.

Hi

My reasons:

1. Massive rate cuts of 4% and stimuls of $42B to work its way through the financial system;
2. RBA might wanna wait for the economic data for 1st Qtr 09 to come out first to see if we are in a recession;
3. ASX showing a bear market rally / dead cat bounce at the moment.

Of course, we have the Fed Budget in May, so that will be interesting as well. RBA might choose to hold rates pass July, to allow the income tax cutes to take effect. Upward trending unemployment rates could be a factor in bring about a small cut if needed.

Regards
Daniel Lee

 

[WinstonWolfe]

I am betting on a 0.5%.

I have significant exposure to gold in aud, and benefit when the AUD comes down against the falling USD.

 

[boz]

I am betting on a 0.5%.

I have significant exposure to gold in aud, and benefit when the AUD comes down against the falling USD.

Not sure I understand your post WW, how do you have the AUD linked to gold? is that from AUS gold mining shares? ALso if the US$ is falling how can you benefit with the AU$ (that would obviously be rising)?

 

[WinstonWolfe]

Not sure I understand your post WW, how do you have the AUD linked to gold?

is that from AUS gold mining shares? ALso if the US$ is falling how can you benefit with the AU$ (that would obviously be rising)?

If I hold gold in AUD via an Aussie etf or bullion :

currently a $15USD increase in pog is cancelled by a 1 cent movement higher in aud:usd.


upwards movements in aud:usd happen when :

- the AUD goes up against the USD as when confidence returns to the markets and commodity currencies benefit.

- the USD falls against the AUD and every other currency, as happened yesterday when obama announced he is going to dilute the usd.


I expect the RBA to lower rates in April, which should weaken the AUD against the usd, and thereby benefit gold held in aud.

I also expect Rudd later this year to apply quantitative easing (dilute the AUD).....when there's no room to move rates lower and due to the current account surplus being given to China (via plasmas and Christmas toys). Australian states need it now to maintain current levels of public service. This will hopefully stop the aud approaching parity with the usd this year.

 

[contrary]

I think Glenn i going to be copping some flack when the recession bites.

Frankly I think this obsessive discussion about 0.5% this month or next month is boring. It really is very peripheral unless you are a bond trader.

Personally, I think they should cut rates by 3% next month and have a 0.25% rate earlier, so people can have more useful things to think about rather than when/how much cut debate. There is ZIRP everywhere else, I see no reason why we won't get zero short term rates here. Whether that is by the end of the year or next year is pretty irrelevant to how property will perform IMO.

 

[Aaron Sice]

zero rates will only help lenders, not individuals / companies.

the banks wont go giving ANYONE a 2% mortgage rate.

 

[WinstonWolfe]

zero rates will only help lenders, not individuals / companies.

the banks wont go giving ANYONE a 2% mortgage rate.

good point.