Interest rates stay on hold

[Rolf Schaefer]

The RBA has decided to leave interest rates where they are.

Happy times.

BTW: just fixed one of my investments in Europe for a 10-year rate of 4.38%

 

[Peter 14.7]

The RBA has decided to leave interest rates where they are.

Happy times.

BTW: just fixed one of my investments in Europe for a 10-year rate of 4.38%

Are you affected by change in the exchange rate?

Peter 147

 

[MichaelW]

The RBA has decided to leave interest rates where they are.

Happy times.

Rolf,

Now THAT's a subjective observation. I personally would prefer rates went up, and by 50 basis points please. No, wait, make that a full 100 basis points in one big kicker of a rise please.

OK, so I'm evil, but I could do with a nice big fat recession to get these stupid property prices back to where they belong so I can get in and build a nice fat portfolio with "some" potential upside.

Cheers,
Michael.

 

[Peter 14.7]

Hah!

Michael Whyte justs wants to buy up big and bargian prices

Not evil but ambitious

Peter 147

 

[Rolf Schaefer]

No, I am not affected by exchange rate fluctuations since my investments in Europe or neutral/positive. So I don't have to transfer any money from AUS to EUR.

 

[alexlee]

I'm with Michael. Ramp interest rates (inflation scare, people!!!), kill off the economy, let the financially inept crash, and we'll be there to pick up the bargains.

My opinion is that even if property prices crashed, rent won't drop much (if at all). Cashflow positive properties with future CG potential all over the place! Somersoft nirvana.....
Alex

 

[young_gun]

The goverment wont increase interest rates for a year or so , they government doesnt need too. Through interest rate rise warnining and the settling down of the property boom , borrowing and spending and inflation are all at acceptable levels. The fact that so many Australians are mortgaged too highly means that any increase in interest rates would put the economy in bad stead.

 

[willair]

The fact that so many Australians are mortgaged too highly means that any increase in interest rates would put the economy in bad stead.

Young Gun,
When you look at the big picture,and how many property investors
rely on the negative gearing scenario to stay above the default line
then when they change the rules on N/G the interest will not mean a thing.
willair..

 

[young_gun]

Young Gun,
When you look at the big picture,and how many property investors
rely on the negative gearing scenario to stay above the default line
then when they change the rules on N/G the interest will not mean a thing.
willair..

I disagre , firstly thats if and if the goverment changes the rules on negative gearing , implying they are is just speculation.

Secondly , the whole economy is affected by interest rates wheather they changes ng laws or not. Interest rates slow down the economy , thats simple economics. If it costs more money to borrow than less can afford to buy up big on mortgages. And their are more people on large mortgages reliant on low interest rates out their , than their are property investors reliant on NG . In my opinion .

Thirdly , if the NG laws did come into act , the interest rates would mean alot . Hypothetically if NG laws enacted, the property market would slump . This also means that the value of property would decline and the bring it more in line with the rent , meaning that for those who sold due to ng laws the gap would be shortened due to a fall in value , for the next person who bought in . High interest rates would deter investors getting back into the market more than low interest rates would. So personally I think interest rates are symbolic regardless. Why else is monetary policy one of the biggest ways the government controls the economy ?

 

[stretchy]

young gun,

There are some serious inflation pressures present in todays economy (i.e. oil). Do you think the Reserve Bank wont up interest rates if the increased price of oil flows through and increases inflation?

I know this is also speculation, but we cant predict the future and the inflation rate is right on the upper end of the 2-3% target band. So a interest rate rise is definately a possibility IMHO.

I doubt its going to be a big one if it does happen though.

-Steve

 

[young_gun]

Im pretty sure the government takes everything in proportion , although inflation is on the band of 2 - 3 % , we did just come of one of the biggest bull markets in property in history , so im fairly sure they will be taking that into account as well , as adding to some of the inflationary pressure . They are also probally waiting to see if the property market slows down even more and

 

[willair]

Im pretty sure the government takes everything in proportion , although inflation is on the band of 2 - 3 % , we did just come of one of the biggest bull markets in property in history , so im fairly sure they will be taking that into account as well , as adding to some of the inflationary pressure .

Young Gun,
The real estate bull market hit the wall about one and a half years ago up this way,and that's only my opinion and the ideal time to purchase real
estate is shortly before the collaspe of the share market,at least when the asx falls over in a big way it will give property investors a starting
point,control of interest rates is often used for both economic control
over internal and overseas events and at times for Political Purposes.
anyway i'm back to my economic clock.......
good luck
willair..

 

[young_gun]

point,control of interest rates is often used for both economic control
over internal and overseas events and at times for Political Purposes.
anyway i'm back to my economic clock.......
good luck
willair..

Yes i relise that , but the main thing the government uses monetary policy for is external stability of which inflation in the main concern.

 

[MichaelW]

The goverment wont increase interest rates for a year or so , they government doesnt need too. Through interest rate rise warnining and the settling down of the property boom , borrowing and spending and inflation are all at acceptable levels. The fact that so many Australians are mortgaged too highly means that any increase in interest rates would put the economy in bad stead.

YG,

The "Government" has absolutely no say in what the RBA sets interest rates at. There is a clear separation of powers between the government and the reserve bank...

Having said that, I agree that the RBA is likely to keep interest rates on hold for the foreseeable future, maybe the balance of the year. The big risks to this, as outlined earlier I think, are continuing commodity boom as well as high oil prices. Both of these risk taking inflation outside of the targetted 2-3% band that the RBA wants to keep headline inflation in. The economy recently posted 3% for the quarter and most of the inflation risk is upside meaning rates could still go up 25 basis points or more in H2 2006.

Don't for a second think that the government can step in and say "Don't raise rates because it will look bad in an election year." I read in the AFR today that Costello is grandstanding about not cutting income taxes and so forth for fear of the inflationary pressure this would put on the economy and the risk of interest rate rises that this would cause. The government and the RBA are both subject to the vagaries of the economy at large. They respond to it and try and steer it in the right direction with their individual spheres of influence. One (the RBA) tweaks rates, the other (government) sets policies on such things as first home owners grants and taxation. Both have stimulating or retarding effects on the economy. If the government stimulates it too much then the RBA steps in and puts the breaks on with rate rises as they did on the back of the property boom.

Cheers,
Michael.

 

[MarkB]

The "Government" has absolutely no say in what the RBA sets interest rates at. There is a clear separation of powers between the government and the reserve bank...

Don't for a second think that the government can step in and say "Don't raise rates because it will look bad in an election year."

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)



Mark

 

[see_change]

and the ideal time to purchase real estate is shortly before the collaspe of the share market,

My observations is that when the Share market collapses , initially it knocks the confidence of the whole ecomomy.

We bought ( with others ) the shopping Centre my business is located in early 90's just after a sharp share market correction for just under 700K.

Similar centres sold prior to the correction sold for over 1 mill. This change was purely related to the change in the share market and the effect it had on overall confidence.

Same in Sept 2001 with it's associated share market slump ( obviously other factors were in place as well ) . We sold our PPOR two days after 911. By the time we got to buy about three weeks later the Property market had slumped.

So I think that the period after a Share market slump is the best time to buy in relation to how property relates to the share market . Thats assuming we don't go into a recession triggered by the share market collapse...

See Change

 

[asdf]

Sorry to bring this thread up again. I know its been discussed ad nauseum. Does anyone know if the banks have raised their fixed rate yet? The 3 and 10yr futures have sold off nearly 30bps in the last couple of weeks. The June bills have an implied rate of 5.78% now. Rate rises in the horizon? Hmmm... Again for most experienced investors, 25 or 50 bps increase in this tightening phase means buckleys but the 6.39% fixed for 5 years with Homepath is very tempting though... Mind you, comes with inflexible loan, shi*house DSRs and extremely bad service!

 

[MichaelW]

asdf,

You're right. It seems the latest economic information is firming the likelihood of a rate rise in the back half of this year. That's not likely just before the may budget, but sometime after that seems to be the consensus now.

Here's an article today that spells out the stimulus for the bond market pricing in a rise in the back half of 2006:

http://www.theaustralian.news.com.au/story/0,20867,18745244-25658,00.html

If we continue to see these trends, with strong commodity prices and a weaker Australian dollar, not only will the Reserve Bank be forced to raise rates, they'll be forced to raise rates several times.

Costello was asked last year what he thought would follow the period of booming commodity prices and weaker consumer spending. He believed the commodity boom would end, as all booms must, but by then consumer spending would be reviving. It would be a neat outcome, but it is not how this year is shaping up. There is every prospect that the commodity boom will continue. For our economic managers, that may be too much of a good thing

I don't know if this has translated into increased fixed rates yet, but am interested in the response.

Regards,
Michael.

 

[Rixter]

Adsf,

You can keep an eye on all the rates here . Just click on what ever state you need.

Sorry to bring this thread up again. I know its been discussed ad nauseum. Does anyone know if the banks have raised their fixed rate yet? The 3 and 10yr futures have sold off nearly 30bps in the last couple of weeks. The June bills have an implied rate of 5.78% now. Rate rises in the horizon? Hmmm... Again for most experienced investors, 25 or 50 bps increase in this tightening phase means buckleys but the 6.39% fixed for 5 years with Homepath is very tempting though... Mind you, comes with inflexible loan, shi*house DSRs and extremely bad service!