NZ drops rates.. are we next?

[Andrew_A]

Just read this news on Mish's blog. He seems to be worth paying attention to on global macro issues, though he has referenced some uninformed sources for Australian residential property on his posts before.

I think the key is not what will happen so much as how you are placed at the moment for change and how you react, being right is an easy thing, making money is more of a challenge.

Anyway.. interesting times on the horizon potentially, looks to me based on my guessing that we might well get some rate cuts, but at the cost of what is happening in other places with property prices.

Thoughts?

Worldwide Hard Landing is coming

New Zealand has joined the ranks of the US, UK, and EU in concerns over growth. In an unexpected move NZ cuts rates on fears of a drawn-out recession.

A worldwide recession is coming. China, India, Brazil, and third world economies simply cannot pick up the slack for the US, UK, EU, and now New Zealand

 

[Stinktier]

what the central banks will do and what the banks themselves will do are 2 separate things. The US is a prime example - they have what like 2% interest rates but where are the mortgage rates? There not at 2% thats for sure. Also all the talk with a recession in the US and ARE they talking about another rate cut? If anything they have actually starting talking rate rises - and this on possibility of a recession. And it certainly shouldnt surprise anyone, they are starting to nationalise their losses in housing and passing it on to the taxpayer (its gonna be trillions - ,000000000000) therefore their dollar has only one direction to go. And then there is the risk of all the outstanding debt the US has, does anyone actually believe its possible that it will be payed off (and $70bill a month trade deficit payed off courtesy of the printing press )!! The problem is (which wasnt one until now) is that we are global, therefore i think we will be affected greatly with what goes on outside our borders, and the banks instead will look at that (NB take a look at NAB today - that exposure was offshore not here - i would doubt they are going to pay for that via lower margins).

NZ may have cut but their rates are still higher than ours.

IMO inflation will continue to be a pain. If you beleive the credit crisis will continue - Expect banks to continue raising (and each time they raise to continue saying it will be the last)

Interesting times ahead.

 

[boomtown]

Inflation in Australia is accelerating.

It was 1.3 percent last quarter. Its 1.5 percent this quarter.

The RBA will not drop rates when inflation is accelerating. In my view there is a real and substantial risk of an August rate rise.

Definitely 1 rate rise by the end of the year if not 2 if inflationary pressures continue to build. The RBA will not hesitate to put NSW into a recession to slow national inflation.

 

[WinstonWolfe]

Not if NAB is a sign of things to come.

Sub Prime losses are only 25% realized, and US banks aren't using mark to market property values on their balance sheets. Lots more pain to come yet imho.

 

[CHISEL]

banks

The Banks,

are doing a low Docs ( not full disclosure) on Us (the public) and the The mortgage insurer ( politicians) are stamping it or turning a blind eye.

CHISEL

 

[pendo]

Read a report in Taipan Publishing that August will see the start of a financial market collapse in the US.

Doom and Gloom for sure, but not at all surprising!

It underlines the need to have those buffers in place now or never!

 

[MarkandTina]

A question to those more experienced.

Where do I go to find a good explanation of why inflation increased to 1.5% this quarter? I'd like to understand how much of this is oil price, how much is due to rents being raised to cover interest rates, and how much is due to banks raising their margins.

My gut feeling is that an inexperienced Australian government will take too long to lower interest rates.

 

[boomtown]

Well for starters interest rates are not set by the Australian government they are set by the Reserve Bank.

The basic break down is here:

http://www.abs.gov.au/AUSSTATS/[email protected]/mf/6401.0

 

[Stinktier]

A question to those more experienced.

Where do I go to find a good explanation of why inflation increased to 1.5%

Its a global explosion in credit and money printing so dont just look at it at a micro level - and its the precise reason this is going to take much longer to solve then most people think. The world has been in a global binge (especially anglosaxon countries, for those that have travelled and seen it) and now the chickens are coming home to roost. Because central banks (mostly world wide) have injected enormous amounts of liquidity into the system and threw money out of the 40th storey window so all the good citizens could bid up prices against each other (and then mistakenly think they are in better positions than previously) there will be considerable pain in order to absord all this excess liquidity.

The write downs so far, as winstonwolfe pointed out, have just been a tip of the iceberg. This isnt hard to comprehend, especially by those of us, who believe that it WASNT housing fundamentals that created a housing boom but credit PURE and SIMPLE. It was the unbeliveably easy access to money to ordinary 'joes'.

Its the word 'global' in all of this that will make this situation very interesting.

 

[seank]

The RBA already forecasted inflation to rise this quarter, so this was expected. They have forecasted inflation to moderate and possibly slow (don't quote me) sometime next year. If these forecasts are correct you would assume rates are on their way down.

 

[keithj]

Two points -

1) The RBNZ (& RBA) preempted by increasing rates before inflation actually happened. So they can be expected to preempt on the way down too. The RBA has said as much. RBNZ is expecting inflation to fall, so rates are being cut preemptively, although with the threat that if inflation doesn't fall as expected then there will be rises.

2) Some expect the local NZ banks NOT to pass on ANY of the 0.25% official cut. Bank margins will increase and RBNZ will have to cut again before any benefit filters through to households. I'd expect similar to occur here.

 

[WinstonWolfe]

I concur Stinky. (great name by the way....very Aussie)

Inflation is such a fuzzy concept.

It is possible to have price growth without inflation. i.e. when productivity is increasing equitably with demand.

How much new money is printed is very much dependent on productivity gains.

Interestingly, the RBA and ABS don't talk about productivity gains or GDP growth, in the same breath they announce price growth. An interesting analysis is the relationship between terms of trade, GDP growth, inflation, and credit supply.