RBA to cut rates by 100bp in December

[MichaelW]

Hi Guys,

Well, based on Shadow's linked outlook here:

http://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf

It looks like a toss-up now between whether the RBA goes 75bp or 100bp next month. 50bp is a dead cert, and 75bp looks like being almost a given. The only question is whether they go a full 100bp again or not.

The media is starting to pick up on it too, but are a bit slow on their probability reporting still thinking its only 2/3 chance. The link above has it more like a 90% prob today.

Here's some media reporting:

http://business.smh.com.au/business/imf-snub-for-rudd-20081107-5jq6.html

Investors are betting the Reserve Bank is far from done with its interest rate cuts. They are pricing in a two-in-three chance that the RBA will knock rates down another full percentage point to 4.25% when its board next meets on December 2.

Such a move would bring to 300 basis points in cuts in just four meetings, following the 25 basis point reduction in September, 100 basis points in October, and 75 basis points on Melbourne Cup Day this week.

So, what's your call? 75 or 100bp? Or are you still in the conservative 50bp camp? Please tell me you're not locking rates at the moment...

Cheers,
Michael

 

[Rixter]

So, what's your call? 75 or 100bp? Or are you still in the conservative 50bp camp? Please tell me you're not locking rates at the moment...

The majority just dont 'get the purpose' behind locking in rates.

P.s ... its not about cash flow - that's just the surface effect.

 

[sunshine]

The majority just dont 'get the purpose' behind locking in rates.

P.s ... its not about cash flow - that's just the surface effect.

Hey Rixter - I have always been variable. Maybe I am missing something, can you please fill me in on the purpose of locking in rates please.

Michael

I thought it may have been a 1% last time, so I reckon it will be 1% next month. Even if i am wrong I will be very happy with the .75%.

The cashflow has eased up by 000's per month. Another .75 and we will be closer to the whole portfolio being positive. Didn't expect it quite quickly.

Fear has left my building...

Sunshine

 

[Aaron Sice]

if rates go down another 100bp - i will be queuing at BOQ Morley the very next day with a written up investment strategy begging for a non x-col loan againt the block of land only, looking to fix rates for 10 years.

 

[buzzlightyear]

The banks must be loving these huge rate reductions.

Allows them to take a bit off for themselves and people are grateful for the 75basis point reduction of the 100 or the 58-65 basis point reduction of the 75.

Call me greedy, but I would like all of it thankyou.

 

[steveadl]

I don't begrudge the banks their profits, good on em! But does anyone else think it's weird they independently dropped rates by .20% because 'international funding markets had eased', yet only 2 weeks later (or less) clawed some back again by not passing on the full RBA cut of .75%?

 

[DavidMc]

Yeah... 'but our cost of funding is significant'...

Can't be that significant if they still post bumper profits.

I don't know... do they want to see what the current reduction will do or do they want to jam the brakes on fast? I think just 50 for now.

 

[DavidMc]

You see England go 1.5%? Nice!

 

[yadreamin]

Michael
I would apreciate it very much if you could just slow up a bit on predicting and proving that there will be further rate cuts, its difficult enough for Macquarie Bank to analyise this last rate cut let alone comprehend another so soon
At least l am seeing good cuts from WP
cheers yadreamin

 

[boz]

The banks must be loving these huge rate reductions.

Allows them to take a bit off for themselves and people are grateful for the 75basis point reduction of the 100 or the 58-65 basis point reduction of the 75.

Call me greedy, but I would like all of it thankyou.

I can tell you I don't want to be a bank share holders these days, a bank to make money need to have someone to deposit the money in the banks as much as someone to loan the money to. So if loan interest rate goes down deposit rate need to go down as well. Who is going to leave money in Australians banks at low rate? even below inflation after taxes. The RBA can give money to banks but the system doesn't work that way, at least not for long. Can't just have an entity on top (like RBA or GOV) that buys all banks assets and give cash around for all Australian to spend and build houses and investment. We'll end up one day to realise that the cash around is too much. We need a sustainable growth of money and the banks need to find those investor that deposit money as much as the one that get loans.
With all these rate cuts I am very very worried about the future and the extend of the slow/recession/depression.

 

[Minxdamanx]

I don't begrudge the banks their profits, good on em! But does anyone else think it's weird they independently dropped rates by .20% because 'international funding markets had eased', yet only 2 weeks later (or less) clawed some back again by not passing on the full RBA cut of .75%?

Absolutely Steve, I don't get it either.

My bank (BankWest) was one of those that DIDN'T drop rates by .2 and have now only passed on .6 so they've done even better. ???

 

[steveadl]

Who is going to leave money in Australians banks at low rate?

People too afraid to make any other moves in the current environment read: large percentage of the population, even if they are small figures - they add up.

Yeah... 'but our cost of funding is significant'...

Can't be that significant if they still post bumper profits.

Yeah but it's all relative. They make their margin whether rates are high or low. I don't expect the banks to lay down and play dead with their profit result/margin just because of the current turmoil and because Swannie want's them to, they need to keep the profits increasing just like any other business - granted it's being made harder for them now with recent collapses etc.

If my customers are having issues, I don't just drop my profit level for them - where would that leave me? For a start they wouldn't appreciate it, and would just end up in me being poorer.

 

[DavidMc]

Of course, I was just pointing it out they're not doing it that tough.

I would expect them to charge as much as people will pay.

Hopefully we'll have enough of the 'little guys' left after all this to keep things competetive. Hmmm... will I use them though? Not when NAB is giving me 0.9% off... (doh). I signed this petition though - http://www.keepbankshonest.com.au/

 

[Aaron Sice]

just makes smaller banks more attractive

 

[Nathan]

75bp next time....

pretty sure of myself too....

 

[ianvestor]

I don't know... do they want to see what the current reduction will do or do they want to jam the brakes on fast? I think just 50 for now.

Increasing rates is usually referred to as 'the brakes'.

Dropping rates is the accelerator

 

[landlubber]

Westpac sees cash rate at 4%

Westpac is forecasting cash rate of 4% ( now 5.25%).

http://www.theage.com.au/national/westpac-tips-an-official-rate-of-4-20081106-5jda.html

LL

 

[ianvestor]

Hey Rixter - I have always been variable. Maybe I am missing something, can you please fill me in on the purpose of locking in rates please.

Sunshine, the purpose of locking in rates in a lot of cases has nothing to do with saving money, but is simply to have the certainty of a fixed repayment amount each and every month.

For example, it might be easier to sleep at night if your payments looked like:

$4000, $4000, $4000, $4000, $4000, $4000, $4000

instead of:

$3500, $3600, $3800, $4200, $3900, $3700, $3100

-Ian

 

[BoatBoy]

I suppose the big question will be what will the state of the economy be and how long can we lock rates in for it they get down to under 6 or even 5%?

I reckon we would have to look at as long as possible, 10 years would be nice.

Dave

 

[Spectre]

so far the rba is surprising everyone with their cuts and outdoing everyone's predictions

IMO not something to get used to and people should make sure theyve got contingency plans in place if the world goes to poo ville