Interest Rates on hold again

[XBenX]

The Reserve Bank of Australia - in a widely anticipated response to global geopolitical and economic uncertainties - announced on Wednesday that it had decided to leave interest rates on hold for a tenth consecutive month.



Fin Review

 

[Jas]

Radio report I heard said that it was more likely rates will go down in June/July - provided the war was still on.

Jas

 

[Michael Croft]

Hi Jas,

Didn't you believe me? I didn't waste all my time studying International Political Economy at the ANU - only spent 95% of my time at the uni bar

Current minor but expensive war lasts < 3 months interest rates up within 6 months of victory. If the war takes >3 months (say 6) interest rates down. This is simplistic and assumes no other shocks to world trade a la sept 11 or enrons etc.

How much up or down? How long is a piece of string?

Regards, Michael Croft

 

[mitch]

Gday Michael,
l dont know how far the rates are going up or down but l can tell you the length of that string you have,its twice the distance from the middle to one end MITCH

 

[Jas]

Originally posted by Michael Croft
Hi Jas,

Didn't you believe me? I didn't waste all my time studying International Political Economy at the ANU - only spent 95% of my time at the uni bar

Current minor but expensive war lasts < 3 months interest rates up within 6 months of victory. If the war takes >3 months (say 6) interest rates down. This is simplistic and assumes no other shocks to world trade a la sept 11 or enrons etc.

Sure I believed you Michael

Now show me how to predict 'other shocks to world trade a la sept 11 or enrons' and I'll be very happy!

Jas

 

[Aceyducey]

I had an economics teacher who predicted the share market 'correction' of '87 to the day.

He never lived it down - and never called the market right again

Cheers,

Aceyducey

 

[XBenX]

wow an economics teacher who actually predicted something correctly

the economist : a highly educated individual who can explain why their prediction from yesterday didnt eventuate today

ahhh economics is all good in theory just like the $AUD is undervalued by 30% atm using PPP (purchasing power parity) hrmmm yeah right.... forgeting some market forces arent we ? oh yeah i forgot the disclaimer ceteris paribis (all other things equal) and this from the leading economics journal.... using the "big mac index"

smh had a summary on the weekend as well

funny things is most of the academics cant see this.... they all think they are at some important frontier or something

ive only met a few that are actually realistic about what they do - all of them from development economics i have been lucky enough to work with DP Chaudhri the student of Amartya Sen (as in the nobel prize winner) they put a new perspective on all the "academics"

tonyc00 - you know these guys from harvard right ? oh sorry they are from Cambridge - you wouldnt study them along w/ interest rate/bond market interactions right ?

 

[Michael Croft]

Hi all,

OK so I stuck my neck out with a prediction on interest rates. The war was over in <3 months so we shall see if the pressure does not come to bear for an Oct/Nov rise in rates.

I've got a fifty/fifty chance of being right, right?

Regards, Michael Croft

 

[XBenX]

whats rates on hold ?

the house wins ?

 

[WillG]

If 1,3 or 5 year fixed rate rises above the standard variable then the rates will probably rise.

 

[Michael Croft]

Hi WillG,

In a static market (inflation stable) with an absolutely predictable future you are right. However there always is (has been) an interest premium for the 'unknown' future.

In short all things being equal, fixed rates of any longer term duration will always be higher than the variable. Of course things are rarely equal and that is what makes life interesting

regards, Michael Croft

 

[Bill.L]

Hi all

Michael, I think you are missing WillG's point, and that is lenders ARE offering LOWER fixed rates for 1,3 and 5 year terms than current variable rate.

Also you said "All things being equal....." this is an economists cop out line, meaning ; "we'll leave out all the important variables that we can't quantify, and put in a few statistics that give us the answer we want"

Can anyone please give me the exact date of when last "all things were equal"??

bye

 

[photo guy]

Not being an economics professor here, BUT

I can not see Int rates rising for some time at least 18-24 months. The worlds economies are in recession we are still in drought, no gov will lift rates that will hurt the farmers and an election is on the cards in 18 months what government would go to the poles with a rate rise under their belt.

SARS will grip the world like the Bubonic plaque shutting down major areas of tourism. Middle australia is doing it tough as it is, and with medicare on the way out rates can not rise. The government has stated that the household debt level is too high due to housing costs, if they lift rates many peple who are allready over commtteied will loose their houses. Inflation is at it's usuall 3 percent. and teh days of controlling it with intersest rates are gone. a ris ein rates also means people have less disposable income which means less money spent which means less GST to the gov and a s money dries up demand shrinks unemployment rises.

If they were fair dinkum they would drop rates reduce tax get us to spend more create demand employ more people gov gets more money, That seems logical to me. BUT I am no economics professor.

I would field bets on a rate rise. I give you 10/1 for the next financial year if rates rise.

What factors do you see to a rise in rates?????

 

[Michael Croft]

Hi Bill,

Thanks and no I didn't miss Will's point and I am aware of the current state of play re rates. All I am doing is pitting my limited experience agin the limited experience of the bank economists. I didn't think I needed to spell it out that if fixed rates are lower than the standard variable then bank economists are betting on rates falling.

At this point in time they (the bank economic forecasters) are betting rates will, at the very least, remain on hold and perhaps go down further. Hence the banks fixed rates being lower than variable. My crystal ball (ever bit as valid as theirs) shows rates rising slightly by calendar year end. So we shall see; and before I am accused of an ego thing "MC vs the bank economists", I really don't care if I am right or wrong but my 'gut' tells me they are off track this time.

regards, Michael Croft

 

[Michael Croft]

Uh oh ........... the other 'D' word is back in play - Deflation fast becoming a reality for the USA. My prediction of a slight rise come Oct/Nov is looking less propable by the minute - such is life.

The 'D' words are; debt, depression, deflation, double digit, and in the case of individuals death and divorce. All have an impact on nett worth.

So another cut to US rates next month means we will probably get one hear too - if not that same month the next. The reason being the rate differential will be to great between Oz and US and our dollar will forced up up to $US0.70+. At this rate our exports aren't so attractive which will compound the effect of the drought - less export produce AND less being purchased.

We shall see - I haven't given up yet! Anyway at $US0.70+ it will be a better time to travel OS

Regards, Michael Croft

 

[XBenX]

rates on hold again incase anyone missed it....

mc - I thought the same thing regarding the interest rate differential and currency appreciation/depreciation - but that theory assumes pefect mobility of capital... it seems the RBA realises the effect of limited capital mobility and doesnt pay much notice to i rate differential when determining its i rate changes.