The Reserve Bank - Next Move?

[Marti]

Hey Property Investors -The market again seems split if the Reserve Bank will cut interest rates at its next meeting on 7 February to 4 per cent.

You can vote here.. http://tinyurl.com/82remof

This week the US economy maybe showing again more green shoots of growth, with higher housing starts and lower unemployment. The Euro-debt seems just as bad, although Germany has seen some manufacturing growth. China's slowdown has reduced their high inflation rate.

Rate cuts are good for investing confidence and making a marginal rental property cashflow positive.

So which way up or down?

Cheers

Marti

 

[Propertunity]

I don't know month to month, but generally next year 2012 - a series of cuts - i.e. down movements.

Not that it matters much - the big 4 have already said they can't / won't be passing full cuts on to customers.

 

[sash]

I can see a 50 basis point cut in Feb.!

Why....because the gloom will overhang.....I think we might see rates almost as low as the GFC!

That should eventuate sometime between May and July.

 

[Aaron_C]

I hope you're right sash. That would be big savings for me.

 

[Marti]

I can see a 50 basis point cut in Feb.!

Why....because the gloom will overhang.....I think we might see rates almost as low as the GFC!

That should eventuate sometime between May and July.

That’s the dilemma, even if the RBA cuts the cash rate as much as you say, will the four banks pass it on to their customers?

One of our loans was arranged through RAMS and placed with their owners Westpac. Westpac has passed on the full .25 base rate cut, but RAMS has not passed this on to us….

If Australia achieves a 4 per cent GDP next year, I don’t see the RBA cutting rates too much further, unless the Euro debt starts a GFC#2.

Here’s hoping that’s not the case..

 

[dredfern]

More interestingly, if the world continues to go to **** and rates are both dropped significantly and at least mostly passed on, will it cause property values to boom again like it did the last time 2009? (ok maybe they only boomed in melb)

 

[Marty McDonald]

Unlikely this time around, but will put a floor under prices. For mine the biggest stimulus was the fhog boost which then filtered up to the next rungs on the property ladder. The lower rates had a marked effect but the real catalyst was the fhog. It was crazy at that time. Some lenders were taking 3 -5 weeks for conditional approvals.

 

[Peter_Tersteeg]

Overal I think it'll go down over the next year, but I'm uncertain of anything happening in Feb.

If it does, it'll probably have to be a 0.5% drop to get the banks to do much of anything. If the RBA only drops by 0.25%, the banks won't pass it all on - they've made this abundantly clear in Dec 2011 - hence my suggestion that it'd have to be 0.5%. As a result I don't think there's actually much point to a cut as early as Feb.

Personally I think 0.5% off at this point in time is too early. Things aren't going well internationally and likely to get worse, but things aren't so bad locally to justify this size drop. One could argue that the housing market needs a push, but I would argue that this is part of the natural cycle, other sectors of the economy are doing fine.

Dropping rates by 0.5% leaves the RBA less room to move in the future (they can only go as far as a 0% cash rate). Better to keep it in the pocket for when it's really needed, than to play a good card too early and throw it away in a hand where you're already strong.

As much as I'd personally benefit from a rate drop, I don't see it as a good move for the country as a whole at this point.

 

[Player]

.......................... One could argue that the housing market needs a push, but I would argue that this is part of the natural cycle, other sectors of the economy are doing fine.

.......................As much as I'd personally benefit from a rate drop, I don't see it as a good move for the country as a whole at this point.

^^^^^^^^^^^^^

What Mr. Bear said.

I also benefit from a large fixed loan coming off in Feb. However, too much too soon and perhaps that bubble proper will form

 

[outoftown]

I am in a combank 'wealth package' which is variable and they passed on none of the last rate cut to customers on that product. The proportion of their customers on the 'stabdard variable rate' would be very small I think as it is an extortionately expensive product, 7.81% from memory, but they front up to the papers and say they have cut rates.
My rate is currently 6.33% and it would be lovely to see a 5 in front of it next year but with the lack of competition why would they bother.
Gail kelly often leads the charge with the 'costs of fuds are rising' line whether or not they are rising or falling and the aussie media happily parrots along with this rhetoric. I would like to see a simmple weekly chart in one of the papers displaying the cost of funding V borrowing costs so that we can see through the bank speak after each RBA meeting.

 

[Peter_Tersteeg]

I am in a combank 'wealth package' which is variable and they passed on none of the last rate cut to customers on that product. The proportion of their customers on the 'stabdard variable rate' would be very small I think as it is an extortionately expensive product, 7.81% from memory, but they front up to the papers and say they have cut rates.
My rate is currently 6.33% and it would be lovely to see a 5 in front of it next year but with the lack of competition why would they bother.

I think you'll find that the CBA passed on all of the November and December 2011 rate cuts to customers. Your quoted delivery rate of 6.33% supports this.

 

[outoftown]

Sorry my mistake.
My rate was 6.66%, I just checked and it is reduced to 6.41% as of 19.12.11. They took there sweet time though.

 

[Marti]

Gail kelly often leads the charge with the 'costs of fuds are rising' line whether or not they are rising or falling and the aussie media happily parrots along with this rhetoric. I would like to see a simmple weekly chart in one of the papers displaying the cost of funding V borrowing costs so that we can see through the bank speak after each RBA meeting.

Its important that Australia’s banks are profitable and well capitalised, even their profits to us seem almost indecent. And of course they all sing the same tune regarding funding costs. But you can see what the current Euro debt is doing to their ability to raise funds.

The costs of their funds is indicated by LIBOR.
Wikipedia: The Libor rate is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate (LIBOR, /ˈlaɪbɔr/). Banks borrow money for one day, one month, two months, six months, one year, etc., and they pay interest to their lenders based on certain rates. The Libor figure is an average of these rates. Many financial institutions, mortgage lenders and credit card agencies track the rate, which is produced daily at 11 a.m. to fix their own interest rates which are typically higher than the Libor rate. As such, it is a benchmark for finance all around the world.

http://www.wsjprimerate.us/libor/libor_rates_history-chart-graph.htm

Click on the link to see chart. As you can see the graph is low which means, 1) Banks do not wish to lend to each other and 2) the cost of funding is high. If you can see back to 2007 things were very different then.

Cheers
Marti

 

[eeew]

Like the last 2 months, interest rate movements in the first half of 2012 will be almost fully dependant on one factor: europe.

 

[Aaron_C]

The simple fact is if the banks are making money, then most likely everyone else is making money. That's how ponzi finance / fractional reserve lending works.

 

[sash]

Checked my variable rates....

6.11% x1 CBA
6.31% x 4CBA
6.36% x 4 NAB

Fixed rates
5.59% x1 (comes off April 2012) Adel Bank
6.39% x1 (comes off Oct 2012) CUA
6.94% x1 (comes off April 2012) CUA

Hoping to fix rates at around 5.5%-5.7% for a 3 year rate.

That should give me about 70-80k positive income.

 

[twhurl]

Bankwest Cut

Did anyone get a lovely 2 page letter from Bankwest saying how great they are and how much they love me so they are giving me .24 of the .25 cut. This has to be derived from the lovely charts they print on the back. My wife and me have a joint account so we get two letters addressed to both of us each time for the last two cuts.

 

[Nathan]

50bp march - may 2011.

There may be further 25 - 50bp further on or grouped all together depending how the next 2 months pan out.

Never the less I see depressing stories arising from the media outlets.

Furthermore, I see that as opportunity.

 

[sash]

Yep...cry me river...quickly! Love the media.....the bogans who read them are playing into our hands!

As for rates....the cuts will be sharper and quicker. The economy outside of mining remains very weak. The scaremongering about massive job losses is going to further slow spending....this should push rate cuts nicely along.

50bp march - may 2011.

There may be further 25 - 50bp further on or grouped all together depending how the next 2 months pan out.

Never the less I see depressing stories arising from the media outlets.

Furthermore, I see that as opportunity.