Interest rates on the way down

[seank]

yet another news article, however I note a positive 1 !!
Looks like good news for us investors.
I make the bold prediction (which might come back and bite me) - maybe 1 more rate rise, then rates will start heading down. Prices will remain constant for some time, ( no crash), however on the back of lower interest rates investors will move back in.....This coupled with high demand, strong population growth, employment back up, and higher incomes.... Dare I say our next boom?
cmon sceptics challenge me, and make your predictions
http://optuszoo.news.ninemsn.com.au/article.aspx?id=86504&_cobr=optus

 

[willair]

Looks like good news for us investors.
I Dare I say our next boom?
cmon sceptics challenge me, and make your predictions
http://optuszoo.news.ninemsn.com.au/article.aspx?id=86504&_cobr=optus

You can look at it both ways,from the way i look at things most consumer spending over the past few years has been heavily dependent on withdrawing equity from housing,and as the IMF has singled out Australiaand several other countries for a housing slump,and with home lending and building approvals are on the decline,auction clearance levels are at very low levels ,the RE market now is a very different game..

My opinion interest rates will go above 11% over the next 2 years prior the next election,then flatten out,so MR Rudd CAN TELL EVERYONE WHAT A GREAT JOB HE HAS DONE TO THE AUSTRALIAN ECONOMY..willair

 

[crc_error]

My opinion interest rates will go above 11% over the next 2 years prior the next election,then flatten out,so MR Rudd CAN TELL EVERYONE WHAT A GREAT JOB HE HAS DONE TO THE AUSTRALIAN ECONOMY..willair

I believe Peter Spann is predicting 10%+ over the next couple years, with the peak been around 2012.

but really, its anyones guess..

 

[alexlee]

My opinion interest rates will go above 11% over the next 2 years prior the next election,then flatten out,so MR Rudd CAN TELL EVERYONE WHAT A GREAT JOB HE HAS DONE TO THE AUSTRALIAN ECONOMY..willair

He doesn't have that power. The RBA is independent.
Alex

 

[yieldmatters]

Economy slowing = lower interest rates

The only way interest rates will fall is if the economy hits the wall.

In that case expect significant price declines - good buying opportunity, bad selling opportunity.

 

[alexlee]

The only way interest rates will fall is if the economy hits the wall.

In that case expect significant price declines - good buying opportunity, bad selling opportunity.

Quite. The RBA looks at CORE inflation, and at the medium term. The only way the RBA would be convinced that core inflation isn't going to kick back up again in the medium term is if the economy really starts to slow. Just a fall in core inflation in the immediate period won't be enough. Such a slowdown will likely involve job cuts, etc.

Even better would be to refinance at or around the top of the market, put the money in offset accounts and then buy when the market is down. This is limited to those who have property.
Alex

 

[MarkB]

My opinion interest rates will go above 11% over the next 2 years prior the next election,then flatten out,so MR Rudd CAN TELL EVERYONE WHAT A GREAT JOB HE HAS DONE TO THE AUSTRALIAN ECONOMY..willair

He doesn't have that power. The RBA is independent.
Alex

I don't think Willair was suggesting that Rudd would halt interest rate rises at that level.

I do think Willair was suggesting that is how how rates will go, and then the rate rises will stop and at that point Rudd will claim credit for stopping them.

But to comment on Alex's specific suggestion that Rudd doesn't have the power. The fact is he does.


As I posted here.

One of my favourite topics.... debating the independance or lack there of, of the RBA.

As someone who has seen first hand how imposing and persuasive a man Peter Costello is, I am firmly in the "or lack there of" camp.

It bears noting that all RBA Board Members (including the Governor and Deputy Governor) are appointed by the Treasurer of the day. They are not voted into those positions by their peers or the populice. They are political appointments whose continuance in those roles depend on appeasing their political masters.

In many respects the RBA operates the same way that CPI does. It has an acceptable “band” of behaviour in which it can more or less move freely without bouncing off the walls. Of course, no-one knows for sure how wide that band is.

I like to think of it this way...

Is a dog that is on a leash and out for a walk with its master truly independant? Only to the extent its master allows it to be.

Imho that is what the RBA is – free to the extent its master allows it to be.

References:

Appointment of the Governor and Deputy Governor

Membership of the RBA Board


Fwiw, in a game of economic policy chicken between the RBA and the Treasurer, the RBA is in a moped and the Treasurer is a road train. Nothing the RBA does compromises what the Treasurer has to do.


Why?

As mentioned above, the RBA are not elected to manage the economy, the Commonwealth Government is. The only way they can do this is by having actual or de-facto control of the arms of economic policy (fiscal policy, monetary policy, etc).

Reference:

s.11 of the Reserve Bank Act 1959 (Differences of Opinion on Policy)

I'm not suggesting for a moment that each and every meeting of the RBA Board is a pointless fiasco as the outcome has already been determined by capital hill. It doesn't work that way.

M

 

[willair]

He doesn't have that power. The RBA is independent.
Alex

I just try and keep an open mind, and i also think Mr Rudd,and Mr Swann have more power then people think..willair
BOB GREGORY, PROFESSOR OF ECONOMICS, AUSTRALIAN NATIONAL UNIVERSITY: No, no bail-outs, not the sort of language bankers use. What they're saying really is that if you're involved in very risky activities which do not threaten the whole system then that's your business and we're not having a bar of it. But if your a financial institution which is very, very important and your asset structure is good but your liquidity is a crisis that is all of a sudden you find you don't have enough cash then we will come in various sorts of ways if we think the system as a whole is at risk.


http://www.abc.net.au/insidebusiness/content/2007/s2217984.htm

 

[FelixL]

yeah, the govt has way more power in controlling inflation than the reserve bank can ever hope for, eg. cut govt spending, hold back tax cuts, introduce new regulations etc. The thing is, most of the measures will cause people immediate pain and the benefit will most likely come at the next govt term...its not surprising that the politicians aren't keen

 

[tubs]

I'm not suggesting for a moment that each and every meeting of the RBA Board is a pointless fiasco as the outcome has already been determined by capital hill. It doesn't work that way.

M

It certainly DOESNT work that way. After all, it was interest rates that killed off the libs at the last election. Do you think Howard and Costello wanted rates to rise like they did?

 

[alexlee]

It certainly DOESNT work that way. After all, it was interest rates that killed off the libs at the last election. Do you think Howard and Costello wanted rates to rise like they did?

Precisely. Those rate rises around election time went a big way to turn voter opinion against Howard. Given that, it would be political suicide for Rudd to even try to compromise RBA independence.
Alex

 

[Aaron Sice]

i still say the cash rate will stay below the psychological 10% barrier, but god knows what the big4 will do.

 

[MarkB]

i still say the cash rate will stay below the psychological 10% barrier, but god knows what the big4 will do.

Agreed, though in the current environment, I don't believe the Govt would not let the cash rate get much above 8%.

They have the power to step in, despite what some people think.

M

 

[alexlee]

Agreed, though in the current environment, I don't believe the Govt would not let the cash rate get much above 8%.

They have the power to step in, despite what some people think.

The govt can't control what the RBA does with rates, but they can influence it Via fiscal policy and tax policy. But given that battler wallets are already hurting, if Rudd withholds tax cuts and/or cuts government spending, there'll be political backlash.
Alex

 

[MarkB]

The govt can't control what the RBA does with rates

They can.

The question is whether they ever would.

M

 

[alexlee]

They can.

The question is whether they ever would.

After the Libs gave the RBA enough freedom to spit in their faces at the election? Labour putting the RBA and rates under government control would almost certainly spell their doom in the next election. The Liberal hacks would have a field day.

If they have the legal right to control the RBA, any attempt to do so would be political suicide.
Alex

 

[MarkB]

s. 11 the Reserve Bank Act

(2) In the event of a difference of opinion between the Government and one of the Boards (the relevant Board) about whether a policy determined by the relevant Board is directed to the greatest advantage of the people of Australia, the Treasurer and the relevant Board shall endeavour to reach agreement.

(3) If the Treasurer and the relevant Board are unable to reach agreement, the relevant Board shall forthwith furnish to the Treasurer a statement in relation to the matter in respect of which the difference of opinion has arisen.

(4) The Treasurer may then submit a recommendation to the Governor-General, and the Governor-General, acting with the advice of the Federal Executive Council, may, by order, determine the policy to be adopted by the Bank.

(5) The Treasurer shall inform the relevant Board of the policy so determined and shall, at the same time, inform the relevant Board that the Government accepts responsibility for the adoption by the Bank of that policy and will take such action (if any) within its powers as the Government considers to be necessary by reason of the adoption of that policy.

The Federal Executive Council is, btw, all current Commonwealth Ministers.

In such a case the GG would never act against the wishes of a democratically elected Government.

NB. The Government could also influence the RBA via an alteration of the desired CPI band.

M

 

[MarkB]

After the Libs gave the RBA enough freedom to spit in their faces at the election?

There is a difference between direct political manipulation (which you are talking about) and the power to influence as a result of a difference of opinion.

And, fwiw, I don't believe that interest rates cost the coalition the election. There were far larger issues (Howard's uncontrollable ego for one) that broke that camels back.

If they have the legal right to control the RBA, any attempt to do so would be political suicide.

On the contrary, Rudd would be a hero to many if he put on his superman undies and saved the economy from double-digit interest rates.

M

 

[MarkB]

The govt can't control what the RBA does with rates, but they can influence it Via fiscal policy and tax policy.

Every 6 months or so, I wheel out this list of alternatives:

Excluding for a moment external factors such as the price of oil, exchange rates, etc, the government of the day has the capacity to influence CPI through:

- tax rates (personal and company)

- the budget balance (and how a deficit is funded)

- transfer (welfare) payments

- policies on things such as negative gearing

- wages policy (real wages fell in the 1980's under the Accord)

- industry / trade policy (R & D concessions, subsidies, tariffs, etc)

- microeconomic policy and reform (including NCP)

- prudential policy (changes to the asset base that banks must hold)

Changes to any one of those could affect CPI through the demand and supply mechanism.

Seems to have been long forgotten by the people in Canberra though.

M

 

[see_change]

Rudd would be a hero to many if he put on his superman undies....

M

Now that's a look that would beat Downers fishnets ..... though I suppose he'd look better than Joe Hockey ...

Cliff