Interest rates: what is the April news?

[XBenX]

Oops thats what I wanted to post, my thoughts - where is a 75 basis point option - thats what Id do if I was the RBA - but Im hardly impartial...

This period is important to Mr Mac - this is probably the longest period of economic growth we have had (in my perfect memory anyhow - I havent bothered to check) lets see if he can pull on the reins gently...

 

[House_Keeper]

I think they will lift rates 0.25%, after review of reserve bank comments I believe they told us last month.

However bucking the trend I believe (after examination of the hairs on the back of my left hand) that unless the Australian economy does something dramatic, I suggest this will be peak, followed by a long period of stasis.

I think too that they will lift rates by 0.25% this month.

However, I can only hope that there will be no further increases. No matter what the economy is doing, if inflation starts to pick up, the RBA is likely to increase rates as it sees high inflation a bigger evil than low growth.

Cheers,

 

[XBenX]

While we are at it lets run a dirty float again.....

Read this post again - its ambiguous - Im not implying that we dont sell or buy AUD atm - more referring to a return to pre floating forex regime....

 

[House_Keeper]

I love this quote from Access Economics:

"First the Reserve Bank stuffed up by having rates too low for too long, encouraging a housing price boom," Access says. "Then the Government stuffed up by spending $66 billion over five years on boosting demand, when it actually needed to spend on boosting supply. Now the Reserve Bank is stuffing up again."

http://www.theaustralian.news.com.au/common/story_page/0,5744,12746116%5E2702,00.html

Nice exaggerated sentence to get a bit of media attention.

That's funny, about 6 months ago, before the election, many people were saying what a great economic run we've been having from good decisions from the RBA and good economic policy from the government.

It's always much easier to to set policy with the insight of the future, just like it is much easier to trade knowing future prices.

Cheers,

 

[Peter 14.7]

Whilst I failed to bother to post my head said up but my gut said stay.

Why.

The RBA IMO uses fear as their greatest weapon.

If they had gone this time many would have said "thats it, the top is here, buy, buy"

This way they keep the fear factor without the actual pain.

Peter 147

 

[Aceyducey]

The RBA IMO uses fear as their greatest weapon.

If they had gone this time many would have said "thats it, the top is here, buy, buy"

This way they keep the fear factor without the actual pain.

Peter,

I disagree.

If rates had risen the media (and this forum) would have been speculating over whether there would be another increase next month or stressing over a fall in property prices rather than getting ready to dive back into the market.

Personally I expect interest rates to go higher over the next few years, but I think it will be some time before the RBA feels the economy is robust enough to increase them again. The RBA is in no hurry, it's there for the long haul.

If you look at the RBA's charts (http://www.rba.gov.au/ChartPack/interest_rates_australia.pdf) and note the period of time between the last set of rate increases and last month's increases that might give more indication of the rate at which the RBA is prepared to increase interest rates.

In other words, if in 6-9 months the RBA feels the economy has absorbed the effects of current levels, they will raise them further. But if not, or if it's not necessary, they won't. Keep in mind that right now oil prices are doing the RBA's job for them

Note that doesn't mean I see a future need for 10%+ rates. That's too far in the future from the current economic scenario to bother speculating.

I do, however, see rates potentially hitting 6%, maybe even 6.5% over the next 3 years IF and only if the economy overheats in some way - and it's not there at the moment.

And if they do, they will be timed increases whereby the economy can absorb each incremental increase without large amounts of harm. There won't be massive numbers of bankrupcies, fire sales or business failures, that'd be a failure for the RBA, not a success. There'd simply be a gradual squeezing of consumers in order to cut consumer spending and shift a few more dollars into savings.

That's my 2c (at 5.5% interest)

Cheers,

Aceyducey

PS: I'm bloody glad that Access isn't running our economy!!!

PPS: By the way, by NOT raising rates there are already people saying publicly that rates have topped.....so the idea that the RBA is simply maintaining fear clearly doesn't work from this perspective either

 

[MichaelW]

I disagree.

If rates had risen the media (and this forum) would have been speculating over whether there would be another increase next month or stressing over a fall in property prices rather than getting ready to dive back into the market.

Acey,

Seriously? I'm not sure everyone on this forum would have been "stressing over a fall in property prices". I, for one, would have been more aligned to the "getting ready to dive back into the market" category. And I think there's quite a few others, XbenX?, who are in a similar boat.

From a personal gain perspective, I was dissappointed when the rates stayed steady. Real estate prices have run so high now, I'm sorely hoping for a major recession to shake everything back to the ground and open up the market again. I live for volatility, and would love to see a 30-50% reduction across the board in real estate prices here.

If the market stayed flat there'd be no money to make in real terms, its the ups and downs which create opportunity for us. Steve Navra even suggests staying out of WA because the degree of volatility there is less than can be achieved in the eastern seaboard.

As always, just my 2c,
Michael.

 

[MarkB]

The RBA IMO uses fear as their greatest weapon.

This way they keep the fear factor without the actual pain.

FWIW I agree with Peter.

Jawboning has become a hallmark of the RBA under McFarlane's tenure.

No-one, the RBA included, likes high interest rates. They are an indication of serious inflationary pressures and tend also to be associated with currency appreciations. They also have political stigma attached to them.

I have said this many times before - for all the independance (and I applaud that) of the RBA, they remain at the ultimate mercy of the PM and the Treasurer.

The RBA Act is quite explicit in that regard. In the event of material differences between Government and RBA policy, the Government prevails. After all, it was the Government, not the RBA, that was elected to manage the economy (among many other things).

As posted by SC , A/Prof Steve Keen, who made a name for himself a couple of years back with a rather provocative book called "Debunking Economics", is on the public record as saying that Australia may slide into a recession.

This is a real possibility.

The December quarter CGP figures showed growth of only .1% in the economy. It doesn't take too much of a slowdown from that point to have the two consecutive quarters of negative growth required for a recession.

Don't think that this isn't shending shivers down the spines of some very powerful people in Canberra. If Australia slides into a recession, even if it is only a brief one, the Howard Government will lose all the ascendancy that it has on economic management.

I am not saying that more interest rate rises are not on the cards. But you have to appreciate the powers at work behind the scenes here.

M

 

[XBenX]

I, for one, would have been more aligned to the "getting ready to dive back into the market" category. And I think there's quite a few others, XbenX?, who are in a similar boat.

True Michael - thats one of the reasons I was looking for a rise - Id like some more IP's - after MP has been given some time work (remembering the lag effect)

The other reason is Id love to trade through a decent downturn (I was in Primary School last time around) and I figure I would learn a lot.

 

[MichaelW]

Guys,

Well, it looks like we won't have to wait long for that rate rise after all...

http://www.theage.com.au/news/Busin...ms-as-RBA-frets/2005/04/06/1112489558829.html

Interest rate rises remain squarely on the agenda this year, threatening corporate profits and the confidence of investors and consumers, with the central bank determined to keep inflation from accelerating.

So sensitive has the issue become that two Reserve Bank board members made the extraordinary move of publicly discussing the bank's decision to keep current rates on hold when many observers were expecting a rise.

Board member and Australian National University academic Warwick McKibbin said inflation was the overriding concern.

To actual discuss their thinking when holding rates steady is very unusual. I guess they want to be careful not to signal that they have decided to hold rates steady for the foreseeable future. Gotta keep the "threat" of an increase alive for it to be effective hey Pete?

Cheers,
Michael.

 

[Aceyducey]

Don't think that this isn't sending shivers down the spines of some very powerful people in Canberra.

Pitt,

That's the Canberra winter actually

Cheers,

Aceyducey

 

[Peter 14.7]

Guys,

Well, it looks like we won't have to wait long for that rate rise after all...

http://www.theage.com.au/news/Busin...ms-as-RBA-frets/2005/04/06/1112489558829.html



To actual discuss their thinking when holding rates steady is very unusual. I guess they want to be careful not to signal that they have decided to hold rates steady for the foreseeable future. Gotta keep the "threat" of an increase alive for it to be effective hey Pete?

Cheers,
Michael.

My point exactly.

Someone said the greatest fear, is fear itself.

Acey, sure some comentators will say this is the top. They did the same in Jan 2004. But who will believe them

I dont. And the Average Joe will not either.

this very, very macro.

Average Joes ( who are80%) of the consumers are thinking:

House prices going down
So I will not invest in IP and think twice about that extension
Petrol going up better cut back on something
Job is secure
They ( RBA ) says rates will go up.
I remebr the 1990 rates
Ok, so will sit tight. Pay off the PPOR.

Most of the population are not high income earners and have simple needs.

The RBA is sseeking to influnce confidence. Thats a perception. Not a reality.

Go back 6 months everyong was confident according to the surveys

Now, after 1 only 0.25% rise, the sky is falling!!!

You and I know that 0.25% is nothing in grand scheme but they do not.

Thier willbe now rush to force wages provded the big things that matter to Average Joes ( cost of food, petrol, thier luxuries) are under control to a reasonable extent.

Peter 147