What do you think the Reserve Bank will do with interest rates in Dec 04?
- Thread starter Aceyducey
- Start date
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ab
Sorry getting way off topic here........... I think rates will remain stable in Dec 04.
ab
Sorry getting way off topic here........... I think rates will remain stable in Dec 04.
So you think it's easy?
An interesting thread on HC. This is a reply by a working, professional economist to an article in The Economist recently which insists the US$ is overvalued............
Based on that article, the US$ has already fallen from 0.9 to ~1.3 against the Euro since 2001 (down >40%).
Against the Yen, it has fallen from 130 to today's 105 (down 20%).
The Eurozone, however, is currently at risk of slipping back into recession, and has never really recovered from its post-2001 circumstances.
Also, the matter of Greece falsifying or fudging its deficit figures in order to come within the 3% deficit ceiling for Euro management purposes, is quite worrying.
As for A$ consequences, these are relatively simple to discern:
1.
higher A$ towards 90c;
2.
improving foreign debt situation when measured in A$ terms (ie: US$400B in foreign debt @70c translates to A$571B, but at 90c, translates to A$444B);
3.
deteriorating current account /trade deficits (no prospect whatsoever here for the trade account to go into surplus);
4.
import substitution for domestically produced goods resulting in a possibsle reduction in domestic economic activity;
5.
increased profit warnings by any company trading overseas;
6.
re-location of more Australian businesses overseas;
7.
relaxation of pressure on domestic interest rates (due theorectically to the lower priced imports); and
8.
a clash by mid-2005 between a rampaging A$, a deteriorating rural sector, and a slowing domestic economy (circa, possible domestic recession by late 2005, early 2006);
9.
alternatively, a currency under siege by mid-2005 once foreign support for the A$ slips away, and global circumstances dictate.
Our current account deficit is already much higher than that of the USA measured in GDP terms. Trouble is, ours is growing faster than the USA, whilst apart from our commodity based past, we have little else with which to cushion the deficit going forward.
Prognosis - the US$ may well continue to fall (due to manipulation and determination rather than to the interaction of differing market forces). But the US economy still accounts for >25% of global economic output whilst the Eurozone /EU share of global economic output is starting to shrink.
All the best,
Grant62
A Q from an eminantly sane poster;
G'day all
Grant thanks for your reply. Seems its always a balancing act that is very difficult to manage, usually resulting in an overbalance one way then the other.
cheers
Grant's repl was:
Hi Rod,
Normally, I would agree with you. In this instance, however, the RBA seems intent on not wanting to take interest rates higher (ie: operating off the back of benevolent inflation numbers rather than protecting the competitive value of the A$).
A higher A$ thus feeds (all things being equal) into a lower overall price mix due to import replacement /substitution (etc). In those circumstances, the RBA could well be using lower priced imports to contain domestic pricing pressure.
In consequence of this, domestic producers potentially face the risk of having to adjust their domesyic prices to maintain a competitive balance. In classical terms, this is how some could view price deflation being imported into another country.
Short term, a higher A$ takes the heat off interest rates having to be raised in order to either cool the economy, reduce inflation risks, or facilitate balanced growth.
Medium term, however, such a strategy is fraught with danger. Further deterioration in the current account deficit will eventually reach the stage where things will have to reverse themselves. This will either occur through some sort of dollar shock, or through having to adjust interest rates.
Trouble is, adjusting interest rates in those circumstances will likely lead to an even more adverse dollar situation (ie: a rising A$).
The RBA is thus playing a rather dangerous game here.
In the circumstances, they are trying to engineer a soft landing for interest rates and for the A$ which is dependent upon the following:
1.
domestic timing (ie: time in order for the heat to be taken out of domestic lending, etc) - already, at risk;
2.
international timing (ie: time in order for the FED to catch up to neutrality) - somewhere in the 3-4% range.
The trouble is - the timing on 1. is shorter on the timing on 2 (ie: 3-6 months, as opposed to 6-12 months).
The RBA, therefore, is going to have to be very careful in what it does. Otherwise we could face the trifecta outcome of:
1.
a slowing in domestic economic activity (due to the adverse impact of a higher A$);
2.
rising interest rates (to curb speculative lending behaviour); and
3.
a currency cruch (if the A$ falls out of favour, or matters such as our own debt /deficit situation becomes more apparent).
Politically, this is arguably why the Howard Government seems intent on:
1.
not waiting until July 2005 in order to bring on and pass its contentious legislative reforms (ie: in industrial relations, etc);
2.
bringing into Parliament now (not later) most of its campaign promises;
3.
accelerating the move on T3 which (by all reckoning) should still be 18 months away.
All the best,
Grant62
An interesting thread on HC. This is a reply by a working, professional economist to an article in The Economist recently which insists the US$ is overvalued............
Based on that article, the US$ has already fallen from 0.9 to ~1.3 against the Euro since 2001 (down >40%).
Against the Yen, it has fallen from 130 to today's 105 (down 20%).
The Eurozone, however, is currently at risk of slipping back into recession, and has never really recovered from its post-2001 circumstances.
Also, the matter of Greece falsifying or fudging its deficit figures in order to come within the 3% deficit ceiling for Euro management purposes, is quite worrying.
As for A$ consequences, these are relatively simple to discern:
1.
higher A$ towards 90c;
2.
improving foreign debt situation when measured in A$ terms (ie: US$400B in foreign debt @70c translates to A$571B, but at 90c, translates to A$444B);
3.
deteriorating current account /trade deficits (no prospect whatsoever here for the trade account to go into surplus);
4.
import substitution for domestically produced goods resulting in a possibsle reduction in domestic economic activity;
5.
increased profit warnings by any company trading overseas;
6.
re-location of more Australian businesses overseas;
7.
relaxation of pressure on domestic interest rates (due theorectically to the lower priced imports); and
8.
a clash by mid-2005 between a rampaging A$, a deteriorating rural sector, and a slowing domestic economy (circa, possible domestic recession by late 2005, early 2006);
9.
alternatively, a currency under siege by mid-2005 once foreign support for the A$ slips away, and global circumstances dictate.
Our current account deficit is already much higher than that of the USA measured in GDP terms. Trouble is, ours is growing faster than the USA, whilst apart from our commodity based past, we have little else with which to cushion the deficit going forward.
Prognosis - the US$ may well continue to fall (due to manipulation and determination rather than to the interaction of differing market forces). But the US economy still accounts for >25% of global economic output whilst the Eurozone /EU share of global economic output is starting to shrink.
All the best,
Grant62
A Q from an eminantly sane poster;
G'day all
Grant thanks for your reply. Seems its always a balancing act that is very difficult to manage, usually resulting in an overbalance one way then the other.
cheers
Grant's repl was:
Hi Rod,
Normally, I would agree with you. In this instance, however, the RBA seems intent on not wanting to take interest rates higher (ie: operating off the back of benevolent inflation numbers rather than protecting the competitive value of the A$).
A higher A$ thus feeds (all things being equal) into a lower overall price mix due to import replacement /substitution (etc). In those circumstances, the RBA could well be using lower priced imports to contain domestic pricing pressure.
In consequence of this, domestic producers potentially face the risk of having to adjust their domesyic prices to maintain a competitive balance. In classical terms, this is how some could view price deflation being imported into another country.
Short term, a higher A$ takes the heat off interest rates having to be raised in order to either cool the economy, reduce inflation risks, or facilitate balanced growth.
Medium term, however, such a strategy is fraught with danger. Further deterioration in the current account deficit will eventually reach the stage where things will have to reverse themselves. This will either occur through some sort of dollar shock, or through having to adjust interest rates.
Trouble is, adjusting interest rates in those circumstances will likely lead to an even more adverse dollar situation (ie: a rising A$).
The RBA is thus playing a rather dangerous game here.
In the circumstances, they are trying to engineer a soft landing for interest rates and for the A$ which is dependent upon the following:
1.
domestic timing (ie: time in order for the heat to be taken out of domestic lending, etc) - already, at risk;
2.
international timing (ie: time in order for the FED to catch up to neutrality) - somewhere in the 3-4% range.
The trouble is - the timing on 1. is shorter on the timing on 2 (ie: 3-6 months, as opposed to 6-12 months).
The RBA, therefore, is going to have to be very careful in what it does. Otherwise we could face the trifecta outcome of:
1.
a slowing in domestic economic activity (due to the adverse impact of a higher A$);
2.
rising interest rates (to curb speculative lending behaviour); and
3.
a currency cruch (if the A$ falls out of favour, or matters such as our own debt /deficit situation becomes more apparent).
Politically, this is arguably why the Howard Government seems intent on:
1.
not waiting until July 2005 in order to bring on and pass its contentious legislative reforms (ie: in industrial relations, etc);
2.
bringing into Parliament now (not later) most of its campaign promises;
3.
accelerating the move on T3 which (by all reckoning) should still be 18 months away.
All the best,
Grant62
In regard to the post quoted by Thommo, if I ever see a Government take legislative action for currency control purposes, I will faint dead away. Last time it won government the Howard Government immediately implemented its electoral promises. It could afford to because they had been costed, whereas not to do so would be politically tricky. To make an obvious point the Government CAN sell T3 now, whereas it would have been blocked before. Why wouldn't you move fast to get it done - they've waited years for this opportunity!
I suspect that the RBA may not want to try and affect the level of the $A too badly. Currency trading/speculation by Government has drawn recent bad press and efforts in the 1980's to stem the fall of the $A by using interest rates were remarkably unsuccessful and probably led to the 'recession we had to have'.
I think their focus will be larrgely (not toally) domestic. With slightly cooling credit demand but increased pressures, I maintain my belief of no rise in December but probably .25% in early 2005
I suspect that the RBA may not want to try and affect the level of the $A too badly. Currency trading/speculation by Government has drawn recent bad press and efforts in the 1980's to stem the fall of the $A by using interest rates were remarkably unsuccessful and probably led to the 'recession we had to have'.
I think their focus will be larrgely (not toally) domestic. With slightly cooling credit demand but increased pressures, I maintain my belief of no rise in December but probably .25% in early 2005
I second Quiggle's view.
However with the mechanics of a large float such as T3, once the government has the numbers to do it (when the senators take their seats mid next year) it will still take around 12 months to cross the 'i's and dot the 't's to get a float to happen.
Even a fast-track float would take us into early 2006, but my highest expectation would be for the float to take place sometime in the 2nd half 2006...probably just after the tax returns people will be getting from the government's tax cuts
Cheers,
Aceyducey
However with the mechanics of a large float such as T3, once the government has the numbers to do it (when the senators take their seats mid next year) it will still take around 12 months to cross the 'i's and dot the 't's to get a float to happen.
Even a fast-track float would take us into early 2006, but my highest expectation would be for the float to take place sometime in the 2nd half 2006...probably just after the tax returns people will be getting from the government's tax cuts
Cheers,
Aceyducey
Hi All
Well I have sat on the fence for a while but my vote is for no rise.
FYI here is some thing of interest to close from the Age.
On the back of the data, one of Australia's largest non-bank lenders has forecast a further fall in housing values by five to ten per cent over the next year.
“I continue to believe that the Reserve Bank will not increase interest rates for the foreseeable future, especially as there is a stream of mixed data being released on the state of the economy,” Aussie Home-Loans managing director John Symond said.
Mr Symond said that the bulk of the housing market was made up of owner-occupiers, who are now under no pressure to buy, as prices have stopped ballooning.
I seems the economy is running out of steam a bit.
Peter 147
Well I have sat on the fence for a while but my vote is for no rise.
FYI here is some thing of interest to close from the Age.
On the back of the data, one of Australia's largest non-bank lenders has forecast a further fall in housing values by five to ten per cent over the next year.
“I continue to believe that the Reserve Bank will not increase interest rates for the foreseeable future, especially as there is a stream of mixed data being released on the state of the economy,” Aussie Home-Loans managing director John Symond said.
Mr Symond said that the bulk of the housing market was made up of owner-occupiers, who are now under no pressure to buy, as prices have stopped ballooning.
I seems the economy is running out of steam a bit.
Peter 147
quiggles said:John Symonds always predicts no interest rate rise. Usually, he's correct.
Gosh, I could be an instant guru.
You know, usually he is right. I think he was the first to predict downwards movement during the mini rise of 2000.
Peter 147
I agree, and my prediction for a rate rise in the first quarter of next year is looking shakier too.
Thinking about it the RBA must be feeling pretty smug - they sat still and the world has more or less revolved around them! Oil went up 20% in USD (but the USD went down by virtually the same amount. (So we win twice over, coz of our natural gas production). Market cools off, just as OS goods become more affordable and exports less competitive, lowering confidence but increasing ability to invest in production.
It's beginning to sound like a whole series of counterbalancing moves, and in that environement the RBA doesn't tend to be too precipitous.
Thinking about it the RBA must be feeling pretty smug - they sat still and the world has more or less revolved around them! Oil went up 20% in USD (but the USD went down by virtually the same amount. (So we win twice over, coz of our natural gas production). Market cools off, just as OS goods become more affordable and exports less competitive, lowering confidence but increasing ability to invest in production.
It's beginning to sound like a whole series of counterbalancing moves, and in that environement the RBA doesn't tend to be too precipitous.
Not only here
NEW YORK -- Canada's dollar fell to a two-week low
and bonds rose after the Bank of Canada refrained
from increasing its 2.5 percent target interest rate
and dropped its pledge to lift the rate "over time."
The currency is about 7 percent stronger since the
bank started raising rates in September, reaching
a 12-year high two weeks ago. Today the bank
said the current value of the Canadian dollar would
have "a dampening effect" on demand for Canadian
goods. Higher interest rates can spur gains for the
currency, as investors snap up Canadian debt
securities.
No rate rise any time soon, methinks.
Thommo
NEW YORK -- Canada's dollar fell to a two-week low
and bonds rose after the Bank of Canada refrained
from increasing its 2.5 percent target interest rate
and dropped its pledge to lift the rate "over time."
The currency is about 7 percent stronger since the
bank started raising rates in September, reaching
a 12-year high two weeks ago. Today the bank
said the current value of the Canadian dollar would
have "a dampening effect" on demand for Canadian
goods. Higher interest rates can spur gains for the
currency, as investors snap up Canadian debt
securities.
No rate rise any time soon, methinks.
Thommo
