http://sourceable.net/interest-rates-reach-1-5-report/
Does this sound likely? I say no, but then most of europe, america, japan etc are near 0%
Does this sound likely? I say no, but then most of europe, america, japan etc are near 0%
Interest rates to hit 1.5% - Credit Suisse
- Thread starter Tano
- Start date
Let's avoid the emotive terms like rates of 1.5%. The article is talking about the RBA cash rate dropping from 2.5% to 1.5%. This suggests that the delivery rate to home loan borrowers would go from about 5% to 4%.
I guess another 1% cut is possible, but I think it unlikely. The RBA is concerned about keeping rates low to keep inflation down, but at the same time they're making a lot of noise about an overheated property market right now and they know dropping rates further is going to only encourage borrowers which will have a flow on effect to further increases in property prices.
Personally I think they should have stopped cutting at 6%, I don't see that the last 1% in rate cuts really helped the economy but it did light a flame under the property market which was unnecessary IMO.
I guess another 1% cut is possible, but I think it unlikely. The RBA is concerned about keeping rates low to keep inflation down, but at the same time they're making a lot of noise about an overheated property market right now and they know dropping rates further is going to only encourage borrowers which will have a flow on effect to further increases in property prices.
Personally I think they should have stopped cutting at 6%, I don't see that the last 1% in rate cuts really helped the economy but it did light a flame under the property market which was unnecessary IMO.
Lower rates definitely encourage people to pay more for houses, which means bigger loans, which means more money per transactions.
I've also found that business can be fairly good when rates increase. People look at their current loan and wonder if they can get a better deal. Overall I find that any sort of rate movement can be good for business.
What's not good for business is when rates get so high that nobody can qualify for a loan. During the GFC rates got over 9% and for a short period of time we were only doing about 20% of our usual level of business.
The problem with rates being super low is that everyone starts to qualify for a loan and this has a negative impact for many people when rates go up. That's actually quite bad for my business as well.
From this article today: "The current moderate growth in credit was evidence that interest rates were not too low at the moment, Mr Stevens said.
Low rates are "well warranted" on economic grounds, he said, with inflation under control and plenty of spare capacity in the economy.
"In such circumstances, monetary policy should be accommodative and, on present indications, is likely to be that way for some time yet," Mr Stevens said.
Economic growth had picked up outside the resources sector, where the investment boom is winding down, but it would be good to see some further strength, he said."
Seems the RBA, or at least Mr Stevens, is now changing that attitude to downside accomodative.
Peter, great to hear someone with a supposed vested interest having this view!
I haven't done my homework on their analysis - but it all depends on what's holding BUSINESS back from accessing credit.
Is it the price of credit? Or are there a range of other reasons holding them back?
Households are clearly borrowing - the run up in house prices driven by investor loans is evidence to that.
The policymakers view to date (and the Big4 bank economists) has been that all the pre-conditions for business borrowing is there (great price, population growth, etc) - but the non mining business investment tap hasn't started yet.
If the view remains that its NOT the price affecting business investment, than the case for a rate cut is pretty weak.
Of course we could introduce some restrictions to household lending (macroprudential tools) which would allow some scope for lower interest rates - but this is typically against the RBA/Australia's policy culture (too interventionist).
Cheers,
Redom
Is it the price of credit? Or are there a range of other reasons holding them back?
Households are clearly borrowing - the run up in house prices driven by investor loans is evidence to that.
The policymakers view to date (and the Big4 bank economists) has been that all the pre-conditions for business borrowing is there (great price, population growth, etc) - but the non mining business investment tap hasn't started yet.
If the view remains that its NOT the price affecting business investment, than the case for a rate cut is pretty weak.
Of course we could introduce some restrictions to household lending (macroprudential tools) which would allow some scope for lower interest rates - but this is typically against the RBA/Australia's policy culture (too interventionist).
Cheers,
Redom
Glenn Stevens (or a dedicated imposter) is being quite open about rates on the Australian Property Forum. Can't link (it gets blocked but read below):
Bardon said:
Glenn Stevens said:
I find it hard to believe our reserve bank governor posts on APF. Has the account been confirmed? If so then that is awesome.
No idea, could well be an imposter but if so, they're doing a top job.
Peter you raise a point the RBA has a HUGE concern about. The RBA already wants to restrict bank lending so that customers aren't in default if they spring back to 8%. If rates fall I would think credit will get harder, not easier. Yet the economy will need some stimulus....Tighter credit could run contrary to that. The banks may just be forced to get pickier...ie 80% LVR not 95% etc.
Also if rates drop don't expect credit cards to fall. The massive margin the banks make will just increase. Not bad for a low default rate product.
Surprisingly this may be happening in the international space a bit.
Hard caps to lending (LTV/DSCR limits) followed with cuts to interest rates.
Wonder if the motifs of governments is to have lower headline rates - good thing to sell at an election - 'my government has lowered interest rates'
Seems pretty backwards in terms of financial sectore policy to me.
Cheers,
Redom
It also brings out the entrepreneur and the thought process revolves around the interest rates as the demand increases price begin to climb till it stops as it always has then they go down, then people are unable to pay the mortgage payments,it's interesting reading in this site several years ago when the rates were just below 8%,,i'm will be going too several banks agm's over the next month and that's one of the questions I will be asking the board,how do you stress test the system when the tide turns and the rates go back to normal levels..
Can't see a rate rise as it'll drive the A$ back up to above 90c. So flat rates or rate cut is logical.
Went along too a Qld Based Regional Bank "AGM" this morning,and asked the question about how the bank stressed tests when the rates go above 8%,spoke to several of the directors about that simple question no one had much of an idea just go down the line,,then spoke too the chief risk officer for about 15 minutes,it's basic maths 2% above current lending rates,and after that who knows,but there are target areas that we add risk %% on because of the high default %%,plus all fixed terms are now locked in for the full time frame no-exit,300 new mortgage brokers have just been added to their business model ,1500 over the next 16 months,same small talk about a large merger with a large Qld based insurance company..imho..
I can tell you exactly how they stress test this in their servicing calculators. Most lenders assume P&I repayments at an 'assessment rate' which is often around 1.5% - 2.0% higher than the actual rate. Lenders will simply argue that they factor in higher rates into their initial serviceability calculators as part of their risk assessment.
I doubt rates will go back to 8% any time soon. I think the new 'normal' is going to be rates below 6% for the foreseeable future. Certainly rates will go up to 8% at some point, but I can't tell you when that might be. It could be 3 years, it could be 30.
That's about the same line they all said,but small banks do not have the higher market share as the big 4 have,and they have the advantages of being well informed and their future income depends on that,even NAB has their AGM in Brisbane this time around.....
