Do You Think Interest Rates Will Rise To 8.5% Or Higher In The Next 3 Years???

[Watermelon Man]

Hi Everyone!

Just fixed both my IPs for 4 years, because I think interest rates will increase to around 1-1.5% over the next 3 years to try & slow down the big spending across Australia in varied areas obviously such as real estate, retail spending, etc. At the end of 3 years I believe interest rates will be at least 8.5% however my Dad on discussion tonight thinks "No Way!"; as 8.5% interest rates would introduce a massive depression of property prices/downward turn in the real estate market - seeing properties being sold at wholesale prices & homeowners almost walking away from their properties. His thinking rationale is that when Keating was in government & interest rates were 17% the ratio of debt levels to affordability with incomes was much lower than it is today, & thus an extra 1% increase today would be far worse than the 17% interest rates of the past. What does others think? Vote & please leave comments. Cheers!

 

[alexlee]

What does the yield curve tell you? We can argue different points all you want, but none of us know. In any case, you're only talking about a 1% or so increase. That's not much over 3 years.

If the RBA sees the need to raise interest rates to decrease inflation, it won't really care if the property market crashes. The RBA's mandate is economic, and current central bank policy around the world is to moderate inflation. Everything else, including the property market, is secondary.

I remember reading older new articles saying if oil ever hit $65 USD, we're all doomed. Well, it DID hit $65 and we're still ok.

Also, are you referring to a 8.5% RBA cash rate, or a 8.5% mortgage rate?
Alex

 

[Nullagine]

Known broadly as the "China-effect", it has held down goods inflation. The rich West has been able to indulge in housing booms and credit sprees without an ugly knock-on into CPI inflation.

The game is now up. Industrial wages on China's eastern seaboard have jumped 50pc over two years, while salaries in Bangalore have risen so much that software companies are outsourcing back to Europe.

...

As 'China effect' reverses, inflation threatens

 

[Sunfish]

Known broadly as the "China-effect", it has held down goods inflation.

I was just reading that myself and and came here to post it but now I don't need to. LOL

WM's father has the conventional, and believable, wisdom. But raising interest rates is a cure for inflation and if inflation gets bad enough thats where interest rates will go. The world has experienced an unprecedented bubble in liquidity driven asset values (and it can't continue) so we are in uncharted waters. Maybe we will have an unprecedented bust.

Didn't vote. I really have no idea.

 

[alexlee]

Anecdotal evidence suggests that wages are growing. Part of the reason is rising food prices. It makes farming more attractive, so fewer people are leaving the farms to go to the cities. The cities are becoming less able to provide services for workers. Also basic food prices are rising, especially pork, which is by far the biggest source of protein for Chinese people. Beef, for example, has always been a luxury.

What's going to happen when the price of basic food increases and there is a slowing of labour flowing from the provinces? Most likely, wage increases and inflation increases. So far the world has been decreasing inflation by moving it into China, where spare capacity built up by decades of economic stagnation and massive foreign investment has just swallowed it. Now, the reverse might be starting to happen.

As I've said before, China may have 1.2b people, but that doesn't mean all of them are able to get to a factory and build toys and shoes.
Alex

 

[alexlee]

I recently read how India is seeing higher interest rates because the central bank's efforts to neutralise surplus money in the Indian economy (basically, net trade surplus being turned into Indian rupees, but the govt sells govt bonds to pull those rupees back out) is causing an oversupply of govt bonds. The key difference between China and India here is that China can ORDER its banks to buy govt bonds at above-market prices (i.e. lower yields).

In other words this is already distorting the market in China. I don't know the exact numbers (and I don't think anyone does), but you have the Chinese banks holding govt bonds at very high cost prices. Now, assuming inflation increases, normally the govt will raise interest rates. If those bonds ever get marked to market, you'll see some big losses from marking down those bonds (yields are the flip side of prices, so if yields increase, bond prices fall).
Alex

 

[jym]

Hi Guys

I have just renewed a three year term for 9% for a property I have in South Auckland.

Previously I was paying 7.5%.

There is a prospect of interest rates to go even higher here in New Zealand.

Regards

 

[alexlee]

Hi Guys

I have just renewed a three year term for 9% for a property I have in South Auckland.

Previously I was paying 7.5%.

There is a prospect of interest rates to go even higher here in New Zealand.

The central banks are in a bit of a bind. With the carry trade increasing interest rates will make the AUD and NZD even higher, which will long term hurt the economy. The key to the currencies would seem to be the JPY rate. If the BOJ raises rates, it might dampen the carry trade, but with the Japanese still seeing the spectre of deflation around every corner.....
Alex

 

[BV]

I really have no idea.

Same here but I will have a guess.
I voted "No" because I doubt that the professional rates will increase that much here.
They are currently around 7.3%
Our rates are already above those of other Western countries
and our $ is already too high and hurting our exports.
IMHO our interest rates should come down to control the rise of our $,
they are only kept high to stop us from borrowing.

cheers

 

[BoatBoy]

Known broadly as the "China-effect", it has held down goods inflation. The rich West has been able to indulge in housing booms and credit sprees without an ugly knock-on into CPI inflation.

The game is now up. Industrial wages on China's eastern seaboard have jumped 50pc over two years, while salaries in Bangalore have risen so much that software companies are outsourcing back to Europe....

As 'China effect' reverses, inflation threatens

And then there are stories like these.

Five go on trial over slave labour scandal
http://thestar.com.my/news/story.asp?file=/2007/7/6/asia/18226109&sec=asia

Striking migrant workers attacked
http://thestar.com.my/news/story.asp?file=/2007/7/4/asia/18211419&sec=asia

Gangsters" beat striking migrant workers in China
http://thestar.com.my/news/story.as...otr_rtrmdnc_0_india-282791-1&sec=worldupdates

China's coal-mining industry is the world's deadliest, with 4,746 workers killed in accidents in 2006
http://thestar.com.my/news/story.as...otr_rtrmdnc_0_india-283116-1&sec=worldupdates

Does'nt really prove anything, but while some sector's of China's workforce may be getting pay increases, other's are lucky to get paid.

BB

 

[BoatBoy]

Again, not that it mean's much, but John Symond's had this to say on his blog.


http://blogs.news.com.au/dailyteleg...ilytelegraph/comments/john_symonds_live_blog/


Posted by howlowcanugo of gosford on Thu 21 Jun 07 at 10:08am
John,
with current (and forecasted) interest rates, would it be better to have a fixed rate mortgage or variable. and if fixed would you do it for 1, 3 or 5 years.


I am confident that interest rates should remain pretty stable. Most people have borrowed to the max and fixing a portion of your loan does give you certaintly with repayments. I would suggest fixing maybe half of the loan and keeping the remainder variable which enables you to make extra payments, redraw etc. Fixed rates have recently increased a little so I would wait a few months as I expect them to drop back a little. Hope this helps. John

John Symonds
Thu 21 Jun 07 (12:17pm)

BB

 

[BV]

Again, not that it mean's much, but John Symond's had this to say on his blog.
http://blogs.news.com.au/dailyteleg...ilytelegraph/comments/john_symonds_live_blog/

He also said this.
I am confident that interest rates should remain pretty stable over the next twelve months. Nothing is ever guaranteed and if there were to be any upward movements I would expect them to be very small. If interest rates were to sharply increase it would have nastly effects on the economy but I am of the belief that this scenario is unlikely. Regards John

John Symonds
Thu 21 Jun 07 (12:54pm)

 

[Nullagine]

Does'nt really prove anything, but while some sector's of China's workforce may be getting pay increases, other's are lucky to get paid.

You are right - it does not prove anything with the possible exception that China ia a geographically and demographically large country and that workers are occassionally treated badly like many other parts of the world including Aus.

 

[BoatBoy]

Agreed that wages have increased as these Chinese publication's suggest

http://www.china.org.cn/english/China/215435.htm

http://english.people.com.cn/200510/30/eng20051030_217767.html

http://news.xinhuanet.com/english/2005-10/30/content_3702898.htm

But while there are some stories in some publication's about China's increasing wages,to a whopping $150AUD/mth, other's suggest that maybe the increases arent being passed on to the actual workers.

http://hrw.org/english/docs/2005/01/13/china9809.htm

Labor Rights
Chinese workers have yet to reap the benefits of the country's rapid economic development. Employers routinely ignore minimum wage requirements and fail to implement required health and safety measures. Many former employees of state-owned enterprises lost their pensions when their companies were privatized or went bankrupt. Millions of citizens who have left the countryside to seek work in cities face serious problems. Without official residence permits, these migrant workers lack access to basic services and are vulnerable to police abuse.



And other provinces get paid even less

In China, minimum wage standards vary widely from region to region. Topping rankings for 2006 was Shenzhen City with a monthly rate of 810 yuan (US$105), as compared to bottom Jiangxi Province with 270 yuan per month.


Not arguing that increased wages in China will or won't have an affect on interest rates [we are currently shopping our loan's around], just saying that some industries may not be affected that much.

Industries that feel the pinch of paying increased wages could well just move shop to the cheaper areas.

BB

 

[Sunfish]

I have a theory that if/when China revalues the yuan, as their import costs drop and their export margins are squeezed they will look to their own citizens as consumers. The post war (WW11) economy of the US is a great example of how this works.

It's a big step though for industrialists to choose to raise the pay of their workers so that they can buy their own products. I think it was Henry Ford worked that out.

 

[buzzlightyear]

I remember reading older new articles saying if oil ever hit $65 USD, we're all doomed. Well, it DID hit $65 and we're still ok.

Its the Chicken little syndrome, and you hear in a number of different areas eg environment, interest rates, IR, taxation, war on terror, border security and the list goes on.....

And it really devalues the debates around these issues. Its not long before we debate like Murdoch's "Fox News"

 

[Nullagine]

Its the Chicken little syndrome, and you hear in a number of different areas eg environment, interest rates, IR, taxation, war on terror, border security and the list goes on.....

And it really devalues the debates around these issues. Its not long before we debate like Murdoch's "Fox News"

The debate here is if interest rates (presumably mort-gage interest rates) will (might) rise to 8.5% or higher. Not exactly sky falling stuff given recent rates.

 

[alexlee]

I have a theory that if/when China revalues the yuan, as their import costs drop and their export margins are squeezed they will look to their own citizens as consumers. The post war (WW11) economy of the US is a great example of how this works.

Which is the million dollar question: are Chinese consumers numerous and rich enough to actually consuming enough of their own products to support the Chinese economy? My own guess would be: no, not yet. It'll be a generational shift.
Alex

 

[Sunfish]

Which is the million dollar question: are Chinese consumers numerous and rich enough to actually consuming enough of their own products to support the Chinese economy? My own guess would be: no, not yet. It'll be a generational shift.
Alex

Yes, generational, I can accept that. The bigger hurdle though, is that it would require a centralist (are they still communist?) government to embrace capitalism internally as well as externally. My reading indicates that the winds of change are there. How will the crusty old leaders react?

Fish

 

[BoatBoy]

Yes, generational, I can accept that. The bigger hurdle though, is that it would require a centralist (are they still communist?) government to embrace capitalism internally as well as externally. My reading indicates that the winds of change are there. How will the crusty old leaders react?Fish

Give em a bucket load of cash and some dirty girl's and they'll probably think it's wonderful.

BB