What will an Interest Rate drop do??

[XBenX]

Originally posted by Mikhaila

Lastly, why RBA has to lower the rate to be inline with the world market? If RBA doesn’t want to cut the rate it will not, and if it will the reason will mainly to do with Australian economy (drought, war expenses etc.)

the reason they would change the interest rate is ......having a higher interest rate compared to the rest of the world means net K inflows increase....(think of the country like a bank offering a higher interest rate - they get more new business) this introduces currency issues....

if the forex rate moves outside target range then a cut/rise would occur......

having said that this assumes perfect mobility of K (which is another lame economic assumption that doesnt hold true in the real world) the limited mobility of K means currency changes lag behind interest rate movements... so much so (that in the current situation) i feel the RBA is paying only a limited amount of attention to differentials with the rest of the world

 

[XBenX]

ignore my previous answer - I hadnt read brains reply !

no need for me to repeat

Originally posted by brains
Because most mortgages are for 25-30 years, this is the measure the banks use as the average rate over the life of a loan. Rates might be 6% now but i bet in 25-30 years you look back at the average of the rates you have paid for that loan and it will be 9-10%.

I dont know what you mean by "will it tell us something in 2006" but id say the banks know what they are doing. I expect rates to be about 9% in 2006.

We have had higher interest rates than the rest of the world lately and foreign investment money has been pouring into the country. Besides that, the RBA is concerned about deflation and will cut rates soon, even at the risk of prolonging the property boom, which it has been talking down of late.

Europe, Asia and the States are at very real risk of deflation at the moment and we are part of world markets.
We are not immune to whats happening in the rest of the world.
(Germany had negative growth last quarter, for a financial /economic powerhouse to have neg. growth is a worry)

When fixed rates are below variable is enough indication for me.

 

[XBenX]

Originally posted by Mikhaila
I always had an opinion if foreign capital inflows into the country this is good, rather than bad. Many countries starve to achieve that including Australia. I don’t believe Oz had too much of inflow due to higher cash rate.

The recent BOP figures and AUD increase reflect the net K inflow (albeit a little lagged)

 

[Michael Croft]

Originally posted by Mikhaila

He uses legitimate ways to earn money that all it counts, and if some government stupidity/corruption/stubbornness taken advantage of I don’t feel sorry.

[/B]

Hi Mikhaila,

His methods may be legally permissable and even acceptable to some, but does that make them right. Hitler had the legal right to send millions to their deaths, was that all that counted too? I personally think there is a little more at stake than legitimacy when making money.

regards, MC

 

[the_captain]

I was in Zimbabwe in 1997 when the Zimbabwean dollar collapsed.

Having experienced a currency meltdown......."up close and personal" I'd never wan't to go through it again.

As a foreign person, with wads of hard currency for me it posed no problem. Things cost relatively the same, and it was a bit of a joke at the bar that night when bears cost $500 Zimbabwean dollars, and even funnier when you had to take a backpack to the bank to get enough cash for a week.

However as the average joe in Zimbabwe it sucked big time. You could no longer afford to purchase luxuries like um.......food and or medicine........and don't forget the big one housing.

Many families were on the streets with literally the clothes on their backs and crime was spiralling out of control. You couldn't walk anywhere without someone or a whole herd of kids following you.......desperate for anything you could give them. The streets became a much uglier place to walk around in at night.

For the corrupt/stupid/stubborn Mugabe government it also was no immediate problem as they have been stealing from the country for years and have massive personal reserves of hard currency.

So while legitimate it may be.......remember it's always the little people that get screwed.

 

[Mikhaila]

I've branched my answer into new topic

http://www.somersoft.com/forums/showthread.php?postid=60263#post60263

Originally posted by Michael Croft
Hi Mikhaila,

His methods may be legally permissable and even acceptable to some, but does that make them right. Hitler had the legal right to send millions to their deaths, was that all that counted too? I personally think there is a little more at stake than legitimacy when making money.

regards, MC