interest rates

[keithj]

I disagree. I think when the dust settles Glenn Stevens will find that he has made an error in leaving rates where they are. And that will look not so good for him. The RBA has 300bps to play with (not 100bps). The sentiment argument that it is better to leave some ammo dry has no logical basis for Ir's. Ask people in countries where the cash rate is zero.

The ZIRP countries didn't really have a choice. The RBA had relatively high rates & reduced them by over half. That has had a huge effect on over 30% of the population (those with a mortgage). So the RBA currently has a choice of ZIRP or keep some powder dry. It's expecting more pain between now and 2010, so a gesture of 0.25% occasionally (partially followed by big4) may be warranted.

2% cash rate or 20B more deficit spending ? Obviously the former is more desirable for taxpayers. If Glenn is worried about inflation, yesterdays story.

Agree... however, it'll also be the day after tomorrows story.

Potentially there is a lot further to go with rates : the cash rate could go to zero, the maturity curve could flatten out a lot more (as it does when people's inflationary expectations get squashed). I suspect longer dated debt (and mortgage) rates may not trough for another 5 or more years if previous credit crissis are any guide.

Sure, the cash rate could go to zero. Although the banks would be unable/unwilling to follow & what would be achieved ? Fatter margins for the banks and the SVR v. close to what it is now.

Low rates for 5 yrs is not what the markets have been pricing in.

 

[keithj]

The media/govt/ASX seems to pricing in a pretty steep rebound in actual growth in early 2010 .. is that your view as well?

My view is usually similar to what the markets view is. They're a lot smarter & better informed than me. Currently, I think what they think .

 

[boz]

I don't usually read the "will the interest rates drop further" type threads, but this is an interesting thread with some good posts.

My wife and I were discussing yesterday about possibly fixing a couple of our loans ... getting some more re-valued to see if refinancing is an option before locking in the rest at various stages throughout this year.

I don't really get bogged down in the details of "will they-won't they" and the numbers ... other more intelligent people than me can make those calls. I just try to get a feel for what is going on and listen to my instinct .... It's not very technical and I can't back it up with figures, but it usually works out fine.

We can listen to all the commentary we like and read all the numbers to justify certain outcomes, but at the end of the day .... everyone is just guessing the outcome including the experts.

My wife and I believe we are in a very fortunate position to have a multi million dollar portfolio that is pretty much neutral ... We have been presented with a great opportunity to secure that position by fixing in at low-ish rates.... a possible further small rate drop may help but in the long run we'd rather start fixing very soon and after all a couple of rent increases will cover any further rate drops we miss out on after we have fixed.

The banks have already indicated that even if the RBA drop rates further that they will probably not pass any on. Who knows what will happen.... each of us will do what we believe is right for us and each one of us will do it differently and for different reasons, so why worry about others opinions ...

Anyway ... I've rattled on enough ....

Martin .....

your is a good approach, a proper business would manaag the risk in a similar way.
But I think the best option is still getting rid of the debt and keep a strong cash positive portfolio. But I am aware more taxes would have to be paid in this case that makes investors not willing to become cash flow positive (insanity of the Australian system )

 

[contrary]

[/QUOTE]
Sure, the cash rate could go to zero. Although the banks would be unable/unwilling to follow & what would be achieved ? Fatter margins for the banks and the SVR v. close to what it is now.

Low rates for 5 yrs is not what the markets have been pricing in.[/QUOTE]

I guess in the next 5 years, the lower bound for the standard variable rate might be ? 4% so you are right there is not much left to move there.

But in the 5 and 10 year year fixed, if inflationary expectations are not met and we end up where the US is then the 5 year will be the same or less than the SVR - in the US currently the SVR is 4.7 and 15 year FRM's and 30 FRM's are the same or less !

So there is possible downside to fixing here : I guess at least 1.5% on a 5 year FRM. I haven't looked lately, but what is the current 5 year FRM rate - 6% ?

The downside is 1.5%, so unless you think there is a greater probability risk of 1.5% on the upside in the next 5 years. I haven't fixed my rates yet. I can afford a hike in rates so I'm happy to take the risk at the moment. Anyone who has fixed in the last 3 years has lost.

A 1.5% differential on a 600k mortgage it's a loss to the tune of 46k over the 5 year period.