RBA Reduces rates by 0.50%

[Tillie]

but maybe its the media but everyday talks of job cuts etc, I have noticed

job cuts are a part of life, so I dont like it how the media portray it as big heartless corporation cutting jobs for the sake of hitting hard.

Agree. I think that we (and media) are talking ourself to recession, if nothing else. Often negative talk creates negative atmosphere and sentiment.

 

[Crabnet]

My MB said a coupla months ago that the cost of the Banks' money to lend is going up, so if this is the case, then how can the Banks drop their rates even if the RBA wants to play a bit of a fiddle?

Banks obtain money from depositors funds and from overseas. To reduce their costs of depositors funds they will reduce the interest rate paid. Not much that they can do about overseas sourced funds though. Of course if they reduce term deposit rates by too much then some depositors will look elsewhere for a higher return. A delicate balancing act required.

 

[HotRod]

But don't banks just make money from thin air when you sign the loan doc.

It's called fractional lending or something like that.

Why all the sob stories from the banks when they still make mega profits.

 

[Crabnet]

But don't banks just make money from thin air when you sign the loan doc.

It's called fractional lending or something like that.

Why all the sob stories from the banks when they still make mega profits.

Recent statistics show that there is little demand for extra borrowings at the moment but the banks have to refinance previously obtained cheap overseas sourced money with more expensive funds.

 

[The Fence]

Recent statistics show that there is little demand for extra borrowings at the moment but the banks have to refinance previously obtained cheap overseas sourced money with more expensive funds.

......which we have to refinance with more expensive bank interest charges as a result. But our source of funds are but one, theirs is but many and varied and not all of which are expensive. The margin is ever widening and record bank profits prove it.

 

[Crabnet]

......which we have to refinance with more expensive bank interest charges as a result. But our source of funds are but one, theirs is but many and varied and not all of which are expensive. The margin is ever widening and record bank profits prove it.

Yes their competition with the borrow short lend long model got wiped out during the credit crunch.

 

[The Fence]

Agree. I think that we (and media) are talking ourself to recession, if nothing else. Often negative talk creates negative atmosphere and sentiment.

I gather by "we" you mean you only and not speaking on behalf of everyone.

Agreed about neg talk = neg sent.

Conversely, pos talk can = pos sent. too..yes?

 

[Dan_p]

Recent statistics show that there is little demand for extra borrowings at the moment but the banks have to refinance previously obtained cheap overseas sourced money with more expensive funds.

So as soon as the banks source cheaper funding we will get a relief on interest reates even if the RBA is trending upwards.

 

[wategos]

But don't banks just make money from thin air when you sign the loan doc.

It's called fractional lending or something like that.

No, banks don´t make money out of thin air.. & that´s not what fractional reserve banking is.
This weird myth has been circulating on the internet for a while.

 

[Graemsay]

There's a bit of Doom and Gloom about the RBA's move at Bond Vigilantes.

http://www.bondvigilantes.com/2012/...st-rates-the-lucky-country-is-getting-nailed/

Dylan Grice, who is quoted in the piece, is the grizzliest of bears.

What strikes me from both the scale of the move (0.5% down), and the commentary in the article is that this is a strongly defensive action. Not necessarily a panic, but if they weren't worried then it would have been a 0.25% cut this month, and a similar amount next.

 

[Fifth]

No, banks don´t make money out of thin air.. & that´s not what fractional reserve banking is.
This weird myth has been circulating on the internet for a while.

They kind of do. Mister Blue deposits $1000 into ABC Bank. ABC Bank keeps a reserve of 20% and lends the other 80% out to Mister Red. Mister Blue has $1000 and Mister Red has $800. The money supply is now $1800 instead of $1000.

Where did that extra $800 come from? You could almost say it was made out of... thin air.

Am I missing something?

 

[Crabnet]

So as soon as the banks source cheaper funding we will get a relief on interest reates even if the RBA is trending upwards.

If the banks can source cheaper overseas origin funds in the future then deposit rates should fall. Borrowing rates would depend on how competitive individual banks want to be and how big or small a margin they want to maintain.

 

[Ausprop]

What strikes me from both the scale of the move (0.5% down), and the commentary in the article is that this is a strongly defensive action. Not necessarily a panic, but if they weren't worried then it would have been a 0.25% cut this month, and a similar amount next.

it doesn't strike me like this at all. the banks don't even look like passing on 0.50, what chance did the average punter have of seeing part of a 0.25 move? It's getting to the point now that the RBA have lost control of economic policy - Gail Kelly is the new governor

 

[HotRod]

They kind of do. Mister Blue deposits $1000 into ABC Bank. ABC Bank keeps a reserve of 20% and lends the other 80% out to Mister Red. Mister Blue has $1000 and Mister Red has $800. The money supply is now $1800 instead of $1000.

Where did that extra $800 come from? You could almost say it was made out of... thin air.

Am I missing something?

I was more thinking that if Mr Blue deposits $1000 then ABC Bank can then loan up to say 9 times or $9,000.

My inderstanding is that $9,000 comes from the RBA at the 3.75% rate and from other sources such as OS.

The $9,000 the RBA makes, comes from thin air, it is just created.

 

[Aaron_C]

I was more thinking that if Mr Blue deposits $1000 then ABC Bank can then loan up to say 9 times or $9,000.

Yes that is true for a 10% fractional reserve rate. But that extra $8,000 is created across different banks as new loans are created - not necessarily at the same bank all at once.

 

[piNoob]

When everyone is celebrating this as a good news, does this mean that 0% IR would be the best news ever?

I somehow thought that IR going down means economy has some issues?

Of course I completely understand those with big debts etc.

 

[Aaron Sice]

Banks obtain money from depositors funds and from overseas. To reduce their costs of depositors funds they will reduce the interest rate paid. Not much that they can do about overseas sourced funds though. Of course if they reduce term deposit rates by too much then some depositors will look elsewhere for a higher return. A delicate balancing act required.

considering they took a huge amount of liquidity when the US Fed was handing out confetti - i'd like to see where their increased cost of borrowing comes from, exactly - because it doesn't get much cheaper than 0% interest rates.

 

[Andrew_A]

It will be interesting to see what happens in the market over the next few months, I'm as surprised as the Aussie dollar was that it was 50 in one go rather than 25 and 25 next month if needed.

 

[buzzlightyear]

NAB reduces SVR by 0.32%

SVR goes from 7.31% to 6.99%.

Edit: Effective from Friday May 4th

 

[HotRod]

Jeepers, still holding onto 0.18%!!!!