interest rates
- Thread starter smiffy
- Start date
Yes, the variable IR will go down further................and.................your next Q?
I would say they will drop again next month by maybe .25%
Hopefully the Banks will pass it on. Don't hold your breath.
Anecdotally, from my end (contacts in the field) the news is all bad until the end of the year for sure.
These rate cuts are good for improving people's servicability short term, but while Banks are being gun-shy and lending criteria remains very tough, people will simply not be able to borrow.
This will add to the RBA's inclination to keep rates down.
Unless of course, because the penguins can't get home loans, they have all this expendable income that would have been a loan repayment, and can now blow it on doodads - economic activity, inflation, rate rises! YAY!
The argument from Alan Kohler here is that it now remains the only mechanism left to fight any further weakness, given the budget position.
The current orthodoxy is there is more weakness to come in the economy. If we see interest rate reductions it will be primarily influenced;
* how much this anticipated weakness has already been factored in the RBA policy direction and respective current cash rate
* Banks position or inclination to pass on rates cuts
My gut feeling is we will see further rate cuts from the RBA of at least 0.50% later this year. In dealing with a number of different companies and industries in my line of work, there are hardly any exceptions to the rule of downgrades in profit, tougher trading conditions expected later in 2009 and into 2010, redundancies and changes from full time employment to part time.
The current orthodoxy is there is more weakness to come in the economy. If we see interest rate reductions it will be primarily influenced;
* how much this anticipated weakness has already been factored in the RBA policy direction and respective current cash rate
* Banks position or inclination to pass on rates cuts
My gut feeling is we will see further rate cuts from the RBA of at least 0.50% later this year. In dealing with a number of different companies and industries in my line of work, there are hardly any exceptions to the rule of downgrades in profit, tougher trading conditions expected later in 2009 and into 2010, redundancies and changes from full time employment to part time.
Think they will be 10% soon, and house prices will crash 50%...
In short term, stay same, with rise around jan-may 2010. I reckon late 2010 will see cash rate back @ 400bps.
Just my opion, but no 1 really knows...
Jeez Nathan, you still hanging around here? You were due to crash and burn ages ago were'nt you??!!!
For what it's worth, I reckon another small drop or two, though I think fixed rates have seen the bottom. Part of me hopes RBA don't drop anymore as I can see things picking up next year and will only mean they have to raise rates quicker and harder.
I think he was referring to the RBAs Cash Rate, and not the banks Standard Variable Rate.
Fifteen years ago the banks margins were around 4% (ie their SVR was 4% above the RBAs cash rate). Then a lot of little lenders started up (Aussie, Wizard, etc) and created some competition and forced the big banks to compete with them. The result was that bank margins were reduced to < 2%, as has been the case recently.
Many of their smaller competitors have been unable to borrow wholesale money recently and have been forced out of the market. The big4 banks now have around 95% of the new loan market. They've regained their market dominance of the early 90's.
I wouldn't expect the big4 margins to get back to 4%. They have increased efficiency & cut costs so they can still provide a reasonable return to their shareholders on a smaller margin. However, I'd expect that margin to increase from it's current <2% to closer to 2.5% (wild guess alert). That means they won't follow the RBA down (in full) if/when it cuts rates, and they will add an extra 10bps or so on whenever the RBA raises rates. Of course, their spin departments will justify this with 'increased funding costs'
The bottom line is that RBA cuts are a less relevant than they used to be, it's the margin the banks choose to charge that is going to be main influencer of SVRs in the short to medium term.
And the only way to mitigate this risk is to fix rates for the long term.
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The RBA still has a little bit of room left. So, for example, if they wanted market rates to drop by 50bp, couldn’t the RBA drop the cash rate by 100bp and achieve their aim?
My question as an owner of 2 houses both currently completely variable is, when do I fix my rates and for how long?? Opinions??
I suspect if you were to pose your Q. in poll format you would find that 50 or 60% of those who intended to take advantage of low fixed rates for 3-10 yrs have now done so. Some are holding out hoping they have a little further to fall.
Is your sanf dependent on guaranteed low rates for the next few years?
Regards Jo
Is your sanf dependent on guaranteed low rates for the next few years?
Regards Jo
Yes, it has a little. I believe it needs to keep some powder dry for when unemployment gets above 7.5%.
However, when the RBA cash rate gets down to ~2% it becomes ineffective - banks are unable to offer depositors a reasonable return. And deposits is where much of bank funding comes from. So any RBA rate cuts from here onwards lose a lot of their impact.
Dropping the cash rate by 100 bps, would leave the RBA with nothing. The banks may follow with 50bps.... then what. They're both stuck between a rock & a hard place, neither have any room to move.
Keith,
In light of your thinking that there is little the RBA can effectively do to stimulate the economy, how do you feel about Alan Kohler's "Over to you Glenn" article?
Over to you Glenn: http://www.businessspectator.com.au/bs.nsf/Article/Over-to-you-Glenn-pd20090513-RYS6P?OpenDocument
And the followup: http://www.businessspectator.com.au...eal-centrepiece-pd20090513-RYSG3?OpenDocument
If I have it right, Kohler thinks that the government is leaving it to the RBA to stimulate the economy (rather than doing it directly) by dropping rates further, with the expectation that when the "rebound" comes we'll be busily producing exports with low funding costs.
But you are suggesting there is not much further that banks will drop rates?
What happens if/when the RBA is out of ammo and things don't turn around in 2010?
Jeez Nathan, you still hanging around here? You were due to crash and burn ages ago were'nt you??!!!
For what it's worth, I reckon another small drop or two, though I think fixed rates have seen the bottom. Part of me hopes RBA don't drop anymore as I can see things picking up next year and will only mean they have to raise rates quicker and harder.
hehehehe,
Steve, cant talk much longer things are getting so tight now my internet and electricity are going to get disconnected soon.
Should have listen and not bought those damn houses
We've had 400bps of cuts from the RBA & ~375bps have been passed on to the SVR. The RBA only has 100bps left, and the banks are unlikely to pass on more than half (IMO). So we've had ~85% of the cuts we're going to get.
If you're referring to this from Kohler....
... then I feel he hasn't offered much to substantiate that view. The RBA doesn't care that much about the govt returning to surplus when it forecasts it will, it's job it to ensure inflation & growth stay reasonable. I'd watch for another article from him stating that IRs could rise before inflation gets grip.
The RBA will be powerless & it'll be up to the govt to throw some more $$$ our way. However, looking at various market indicators and the lack of talk about a Depression in the press seems to indicate that the RBA won't be put in that position.
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.
2% cash rate or 20B more deficit spending ? Obviously the former is more desirable for taxpayers. If Glenn is worried about inflation, yesterdays 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.
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 .....
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 .....
Thanks, I had not thought of it like that - that we are 85 % of the maximum way down.
I must admit the end of the world sure seems slow in coming
The media/govt/ASX seems to pricing in a pretty steep rebound in actual growth in early 2010 .. is that your view as well?
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