Interest Rates to Fall Yet Again. Good News For Property Owners.

[Lord Shanghai]

The latest news from our jawboning friends at the RBA: Rates may well come down yet again, due to the weak state of the economy.

http://www.news.com.au/finance/busi...om-to-move-rates/story-e6frfkur-1227120916015

I have lived through several Australian recessions. Property has always risen in each instance, despite apparently bleak economic conditions.

74/75 - Economy in Recession. PM effectively sacked. Property Rises
82/83 - Aust and World economy in recession. Property Rises
91/92 - Our economy in Recession. Property Rises

 

[Deltaberry]

The strategy of holding Australian real assets, US$ cash and invested in US$ liquid assets continues to be a winning strategy.

 

[Truly Exotic]

I thought the government/RBA s stance is to keep it at current levels, and to keep a lid on them rising????

 

[Freckle]

I have lived through several Australian recessions. Property has always risen in each instance, despite apparently bleak economic conditions.

74/75 - Economy in Recession. PM effectively sacked. Property Rises
82/83 - Aust and World economy in recession. Property Rises
91/92 - Our economy in Recession. Property Rises

 

[TMNT]

what am I seeing? it seems that sometimes it rises, sometimes it falls, sometimes it does nothing, sometimes two countries do the opposite after a recession

 

[Lord Shanghai]

I thought the government/RBA s stance is to keep it at current levels, and to keep a lid on them rising????

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The jawboning noises the RBA regularly makes indicate they may loosen just a bit, due to the weaker numbers. Another half of one percent downside, IMHO, will be the max. That should light a fire under the property market and keep things nice and warm.

 

[Truly Exotic]

\

The jawboning noises the RBA regularly makes indicate they may loosen just a bit, due to the weaker numbers. Another half of one percent downside, IMHO, will be the max. That should light a fire under the property market and keep things nice and warm.

I personally dont think it will go down again,

the economy isnt great, but its not getting worse and I dont see it getting worse,

if retail, picks up, and the rest of the economy picks up excluding mining, and they are worried about a false boom/recovery, then I can see them raising them a little,
but overall, I think we are level for at least another 12 months

but who knows!

 

[Redom]

I personally dont think it will go down again,

the economy isnt great, but its not getting worse and I dont see it getting worse,

if retail, picks up, and the rest of the economy picks up excluding mining, and they are worried about a false boom/recovery, then I can see them raising them a little,
but overall, I think we are level for at least another 12 months

but who knows!

With you on this Truly Exotic.

There's only so much monetary policy can do to pick up on 'slack demand'.

I dont think the RBA thinks its funding and finance thats the problem - its more to do so with confidence of the private sector (non mining) to invest in long term projects.

Funds are cheap, population growing, etc - all preconditions. Just waiting for it to kickstart and feed through to the real economy.

But then again, anything could happen!!!

 

[Freckle]

the economy isnt great, but its not getting worse and I dont see it getting worse,

You might want to rethink that....

..and this graphic indicates people are spending less and saving more. That speaks volumes to the mindset of Joe Public.

 

[Lord Shanghai]

An interesting link. The asking median price of a Sydney house is, for the first time ever, more than $1m

http://www.bloomberg.com/news/2014-...and-record-a-1-million-median-sale-price.html

These are interesting times indeed.

 

[nomadic]

I have lived through several Australian recessions. Property has always risen in each instance, despite apparently bleak economic conditions.

74/75 - Economy in Recession. PM effectively sacked. Property Rises
82/83 - Aust and World economy in recession. Property Rises
91/92 - Our economy in Recession. Property Rises

That's because interest rates are cut during bleak economic conditions which causes property to boom. I don't think interest rates will go lower because it will cause more people to pile into property in an already overheated market. It will be interesting when rates start to rise and mortgage stress causes a significant drop in property prices because people can't afford the repayments and have to sell quickly.

 

[Deltaberry]

It will be interesting when rates start to rise and mortgage stress causes a significant drop in property prices because people can't afford the repayments and have to sell quickly.

Ah yes they've been saying that for many years in Hong Kong too.

 

[Lord Shanghai]

I don't think interest rates will go lower because it will cause more people to pile into property in an already overheated market.

The RBA has no choice. Interest rates are pretty much the only lever for them to work with. They could try buying/selling the dollar - they did that in the past. Sometimes it works, sometimes it ends in tears.

 

[Freckle]

The RBA has no choice. Interest rates are pretty much the only lever for them to work with.

Actually it does...macroprudential is a tool they seem reluctant to use. See NZRB

They could try buying/selling the dollar - they did that in the past. Sometimes it works, sometimes it ends in tears.

You buy and sell currency to influence the exchange rate not the interest rate.

 

[The Fence]

RBA wants to "normalise" interest rates asap.

They have been jawboning the AUD down for quite awhile now and only achieved part the way to their target.

They keep saying they dont want to lower IR's just to lower the AUD, but why say that if that's as you say not the done thing?

 

[Redom]

Actually it does...macroprudential is a tool they seem reluctant to use. See NZRB

Our institutional design is very different to NZ. APRA hold responsibility for prudential oversight of the financial system and the 'maco-prudential' tools that RBNZ have implemented.

Of course APRA/RBA/Treasury all talk to each other - i'm pretty sure there's an official oversight group with each of the key players on it - but Wayen Byres (APRA Chairman) holds the pen on this decision.

Cheers,
Redom

 

[Redom]

RBA wants to "normalise" interest rates asap.

They have been jawboning the AUD down for quite awhile now and only achieved part the way to their target.

They keep saying they dont want to lower IR's just to lower the AUD, but why say that if that's as you say not the done thing?

The RBA's goals are primarily based on 'price stability' and employment. They no longer target a desired exchange rate - they did this back in the 70s.

A lower dollar helps boost income growth in Australia. It effectively acts as a 'market' force to transition resources away from certain non productive sectors to other more productive sectors.

For example, during the mining boom, the dollar shot up, and it shifted resources out of manufacturing (uncompetitive) and into mining (competitive). Now the dollar falling is working to undo some of that - shifting resources back into tourism, manufacturing, tradeable services, etc. All of which assist an economy that is transitioning from its highest level of business investment in its history.

In terms of factors that impact "GDP Growth" - the most volatile domestic factor in Australia is business investment. That's coming off a peak, with investment in mining tapering off (partly offset with large export growth). Hence we're really relying on a pickup in non mining business investment.

The line from the policymakers is that the preconditions are there (2.2% population growth, cheap credit, lots of slack in the economy making labour available). The Big4 banks are saying we're waiting for the 'animal spirits' to kick in (Confidence) - and once they do, there'll be investment from non mining channels that boost business investment.

Then the transition will be in full swing - and it wont be too long before that feeds through to inflation figures.

Once it does, or is appearing to do so, rates will move back to their tightening phase.

Cheers,
Redom

 

[Lord Shanghai]

The RBA's goals are primarily based on 'price stability' and employment. They no longer target a desired exchange rate - they did this back in the 70s.

They were at it in the 90s and early 00s as well. And now it seems they plan to do it again. Here's todays jawboning news.

http://www.businessspectator.com.au/news/2014/11/13/currency/aust-dollar-falls-rba-intervention-talk

Once it does, or is appearing to do so, rates will move back to their tightening phase.

Not for at least 18 months. I'm betting on another small rate cut, then sideways for at least a year.

 

[Freckle]

Of course APRA/RBA/Treasury all talk to each other - i'm pretty sure there's an official oversight group with each of the key players on it - but Wayen Byres (APRA Chairman) holds the pen on this decision.

Yep

See below for an update on RBA/APRA MP intentions..

Macroprudential is coming, it?s only a matter of time

Their intention seems to be rather than an LVR approach like NZ they'll go for stricter/tougher qualifying criteria with higher interest rate buffers.

 

[Redom]

Yep

See below for an update on RBA/APRA MP intentions..

Macroprudential is coming, it?s only a matter of time

Their intention seems to be rather than an LVR approach like NZ they'll go for stricter/tougher qualifying criteria with higher interest rate buffers.

Yes, but this is nothing unusual and has been used previously - for a brief period as part of the 02-04 boom before increases in rates 'took the top of off the boom'.

Lots of this 'macroprudential' stuff is going on behind the scenes without anyone ever really knowing. The mass media have no idea what they're talking about when it comes to macroprudential tools, they just love the word because its 'complexity' garnishes so much attention.

There's been a large shift in the international space towards their use - largely promoted by failures in supervision during the GFC and Asian economies preference for a 'hands on' approach. Maybe its just Governments trying to avoid raising interest rates (politically popular).

APRA's done a a world class job in this space over the last 2-3 decades, and have done it at a canter. The health of our financial system is seen as world leading and wasn't really exposed under the most testing conditions in decades.

Their approach to these sort of asset price booms are:

1) Watching whats going on. This involves playing close attention to all the banks. There's been an obvious build up of interest only investor driven credit - which is a 'red flag', so they'd be collecting data on this.

2) Counselling the banks that are waning in terms of prudent lending.

3) Providing prudential guidance. APRA recently sent out a 20odd pager on how banks should effectively lend. This is effectively a 'benchmark' or 'yardstick'.

4) Stress testing - they do this year on year. They're probably being a little more prudent in this domain given the 'frothiness' in the housing market.

5) Turning up the dial - digging into their toolbox. LVR rationing is way down the list. It also doesnt really target the specific risks building in Australia, and comes at large 'indirect' costs, e.g. first home owners, etc.

By the sounds of it they'll turn up the dial - the media seem to be alluding to that.

But that may be all happening BEHIND the scenes. If some of big banks start charging a 10-20bp premium for 80%+ loans, it wont be that unusual (ING/NAB for example do this already). Alternatively, some banks are now offering 'discounts' to go P&I - APRA motived presumably.

Cheers,
Redom