When will interest rates go down???

[WBG Redcliffe]

Hi all

When will interest rates go down???

I have no idea but I hope it's sooner rather than later. My guess is 2009. Don't really no why.

What do you think and why?

wayne

 

[alexlee]

When the RBA thinks inflation will fall below 2% in the medium term.
Alex

 

[BV]

Depending on inflation figures, probably early next year around March.
I am suspecting that the US will most likely drop their I. rates due to the affects of the sub-prime
and that the UK, EU, and AUS will follow.
Cheers

 

[alexlee]

Depending on inflation figures, probably early next year around March.
I am suspecting that the US will most likely drop their I. rates due to the affects of the sub-prime
and that the UK, EU, and AUS will follow.
Cheers

They already did. 0.5% on Friday.
Alex

 

[BV]

They already did. 0.5% on Friday.
Alex

Alex,
I think it was the fed lending rate to the banks, the rates themselves didn't fall.
Cheers

 

[Belu]

Alex,
I think it was the fed lending rate to the banks, the rates themselves didn't fall.
Cheers

as with all rate decreases they take time to hit the banks, whilst the increases are done in days

 

[alexlee]

Alex,
I think it was the fed lending rate to the banks, the rates themselves didn't fall.
Cheers

I stand corrected. It was only the discount rate, not the more important Fed funds rate.

Which means the effect is just to stop a 'run on the bank', or in the current market, to stop liquidity from drying up altogether. The Fed has to be concerned about moral hazard here. After all, isn't the US capitalistic system based on you make the money but you also take the risk?
Alex

 

[rastus2]

Hi all

When will interest rates go down???

I have no idea but I hope it's sooner rather than later. My guess is 2009. Don't really no why.

What do you think and why?

wayne

They may have a way to go up before you worry about them coming down.

Perhaps late next year they might decide to drop (after they have risen to their peak).
Unless, that is, we see a risk of recession here in Oz which is most unlikely at the moment

 

[BV]

Ractus
Today economies are run differently than 20 years ago and interest rates of 18% are IMO a thing of the past.

 

[dave99]

I think in March 2008. Around 90% of outstanding subprime loans in the US have their honeymoon rates reset in Jan, Feb, March next year, in most cases from around 5% interest only, to 2% above the market rate P&I (around 9.5%)

More of these loans reset in Jan alone than the total number that have reset so far. The foreclosures I think will cause a mild downturn, putting downward pressure on rates in the US and here.

-Dave

 

[FHB]

There does seem to be a risk of growth dying in the US, which will result in the Fed cutting rates. They may even do it sooner with the subprime crisis most likely affecting the markets for some time to come, and with the drops in realestate prices and foreclosures, reduced spending may have consequences for global growth.

Under Greenspan the Fed would have dropped rates already, Bernanke may do the same despite inflationary pressures. The RBA is different, they will stay focussed on inflation, and there will be quite a bit of that around with peaking employment and a drop in the dollar increasing the costs of imports. We would need to see global growth fall quite a bit and unemployment to start moving up for cuts to start here. The US problems could trigger this, and could cause growth in China and the rest of the world to slow, not a great thing for us.

What will happen will depend a lot on how bad things get in the US, if this thing didn't hit we might have seen variable interest rates in the double figures over the next couple years. But with this issue continuing well into 08 and a possible post olympics slump in China, our rates may peak sometime next year with another 2 or 3 rises.... as a guess.

 

[lizzie]

even just looking at the graph generously posted by rastus, rates seem to historically have a four year cycle between peaks since the early 1980's ... this could indicate the length of time the hurt factor takes to come into effect and dropping inflation/interest rates to follow, then the hurt is forgotten and spending increases.

if that is a true cycle, then we could expect rates to peak next year before starting a two year decline. just enough time to pick up a few "hurt" bargins, although i bit will depend on the change of government and their policies.

 

[Ausprop]

as exciting as low interest rates are, I would of course like to be in a roaring economy where there is a necessity for high interest rates.

 

[quoll]

It will be interesting if the US rate drops and ours goes up, the A$ is going to go through the roof, imports (eg TV) will drop in price, Aus consumers will buy more stuff from OS. And AUS exports will suffer. So will the RBA drop the interest rate when US drops theirs? They haven't always in the past.

cheers
quoll

 

[quoll]

Perhaps late next year they might decide to drop (after they have risen to their peak).
Unless, that is, we see a risk of recession here in Oz which is most unlikely at the moment

Agree with the resource boom our risk of recession is extremely small.

It would be interesting see figures from GE finance, their data would be a very good indicator of how well the average Oz family is going, GE should write a lot of business over the next 2 years and if my guess is good it will slow down for a few years after that. I'm just waiting for the Banks equity mate ads to come back.

cheers
quoll

 

[WBG Redcliffe]

on the news today interest rates got a mention and it was suggested that the next move may be down. This was based on the US going into recession and the share market taking a hit.

 

[BV]

on the news today interest rates got a mention and it was suggested that the next move may be down. This was based on the US going into recession and the share market taking a hit.

I guess that was to be expected, and there could be more to come.
I also wonder how many Aust. financial institutions are involved.
I am supecting that there must a few out there other than RAMS
but they are just keeping a low profile.

Cheers

 

[alexlee]

The interesting thing now is, even if the RBA, say, drops rates, your mortgage rate may not drop. All the banks have to do is decrease the 'discount' they give. I would say it's likely for new borrowers.
Alex

 

[BV]

The interesting thing now is, even if the RBA, say, drops rates, your mortgage rate may not drop. All the banks have to do is decrease the 'discount' they give. I would say it's likely for new borrowers.
Alex

I am sure it won't be long before the banks realise that they can use the sub-prime
as an excuse for increased rates and more profits...

Peter Costello has warned them though but I don't know how much power he has
to stop the banks from profiteering at our expense....
Cheers

 

[alexlee]

I am sure it won't be long before the banks realise that they can use the sub-prime
as an excuse for increased rates and more profits...

Peter Costelo has warned them though but I don't know how much power he has
to stop the banks from profiteering at our expense....
Cheers

What can Costello do? The banks are well within their rights to increase or decrease discounts as they wish. The only thing stopping them is competition.

I think the hit to bank profits from subprime is real, though. There have been reports of the majors moving off-balance-sheet entities back onto the main balance sheet because those SPIs can't get funding from commercial paper.
Alex