Will Election Year equal Lower Interest Rates?

[GIDDO]

Should I time my purchases in with the election cycle?

The cynic in me says that there is an overwhelming possibility that interest rates will be in "falling" mode during election year.

What do more experienced investors think?

Is there a connection? What will it mean for investors?

I forecast buckets of money being thrown around in election year, and this should increase Joe Bloggs confidence too.

I wish to invest in property while the market is soft, so i am looking forward to a bit higher interest rates yet. (up to about half a percent more should do the trick I think)

I wish to be holding a fair bit as the rates fall and Mums and Dads buy in. (and hopefully increase the prices).
What do others think?

Go ahead - be negative if you like. I may be right off the track here.

 

[Bargain Hunter]

Giddo,

The politicians will have you believe that they hold the purse strings when it comes to setting interest rates.

The Liberal government claimed that it was their policies that have held the rates in check for the last few years, on the other hand they blame the recent rises on world events beyond their control.

The government has overall responsibility for the performance of the economy and the setting of fiscal and monetary policy, however they do not determine the interest rate. This is the responsibility of the Reserve Bank.

One of the reasons for this disconnect is the very example you give, the manipulation of interest rates for political advantage.

The RBA will determine the rate based on economic indicators, if the government is able to control these factors then the RBA is unlikely to increase the rate.


Regards

Andrew

 

[alexlee]

I too, believe that the RBA is relatively independent of the government. If it wasn't, they wouldn't have raised the rate in August. Whether that was the cause or not, homeowners in outlying Sydney (prime Howard battler country) is hurting. If the govt had control over rates they would never have risked it.

If Howard uses tax cuts, etc to entice voters, the RBA will almost certainly raise rates again to quash it. In fact, new RBA governor Stevens might just keep raising rates to really drive home the fact that the RBA is independent.
Alex

 

[GIDDO]

If Howard uses tax cuts, etc to entice voters, the RBA will almost certainly raise rates again to quash it. In fact, new RBA governor Stevens might just keep raising rates to really drive home the fact that the RBA is independent.
Alex

Bring it on Alex, here in S E Queensland I think we need a bit of "hurt" to "adjust" the market to my liking.
I note your comment that West Sydney battlers are hurting.
Maybe I will be able to pick up a cheap second hand Plasma TV as well.

 

[alexlee]

Bring it on Alex, here in S E Queensland I think we need a bit of "hurt" to "adjust" the market to my liking.
I note your comment that West Sydney battlers are hurting.
Maybe I will be able to pick up a cheap second hand Plasma TV as well.

Walk into a hurting Sydney battler's home: 'I'll buy your place at this price, rent it back to you, and I want the TV.'

Personally, I don't mind if interest rates go up. I'm not done buying and would love the market to go down more so I can buy more property. In general Sydney yields still don't make sense. $300k homes are renting in the low $200s.
Alex

 

[GIDDO]

Personally, I don't mind if interest rates go up. I'm not done buying and would love the market to go down more so I can buy more property. In general Sydney yields still don't make sense. $300k homes are renting in the low $200s.
Alex

I have been whining to myself about the low yields here in SE queensland.
I have an older 3 bedroom house that I bought for 205k in Feb this year and it is renting for $220 per week. I was a bit whingey about the yield
till I read your post about Sydney. i am looking forward to the yields rising so i hope Sydney recovers real soon. We are usually a year or so behind.

 

[Aceyducey]

Short answer: No, not due to political reasons

However if economic reasons dictate, the RBA will cut rates.

The government's challenge is to manage the economy such that it will make election year the one in which the RBA begins cutting taxes

Cheers,

Aceyducey

 

[GIDDO]

Short answer: No, not due to political reasons


The government's challenge is to manage the economy such that it will make election year the one in which the RBA begins cutting taxes

Cheers,

Aceyducey

Thank you Acey.


That is the point I should have made when i began the thread.

I did not mean to imply the govt directly pulls the strings.

Rather, I thought maybe the govt manipulates the economy in such a way that the int rates would be falling in election year and not rising.

Purely as an independent decision by the reserve bank in response to the economy which is managed by the govt who is going to the polls.

Maybe this means that in between election years, we can expect NOT to have so many rate drops, maybe even a rising phase?
If all thing fiscal follow a cycle; and the int rate falling part of the cycle is happening in election year; does it follow that the other side of the cycle would occur at the other times.

 

[Peter 14.7]

Maybe I will be able to pick up a cheap second hand Plasma TV as well.

Try Ebay.

No, seriously, try Ebay.

I recently bought a hardly used, heavy duty ( up to 40mm branches) tree branch shredder mulcher for $156.

It is advertised new for $599.

Often people buy in haste, dont use, move, dont have the room, inherit, get prizes they dont want, get unwanted gifts, or simply need spare cash.

If you want to save, go here first.

Some hints to good deal:

• pay COD for large items
• know the new price
• only buy "used"
• ask for specific description of key points ( has a remote, size, colour, HD verus LD) so when you go to pick up and it is does not match you can cancel deal.

Peter 14.7

 

[Peter 14.7]

Acey is right.

It is more planned luck than control that let rates drop in an election year.

For the last 12 months it was petrol prices driving inflation and hence rate.

For the future it will be the drought affecting inflation.

Neither of which the Gov can influence to any great extent in the short term.

Peter 14.7

 

[tubs]

The only link between election year and interest rates is that rates wont move in the few months leading up to an election.

The RBA said that they wouldnt be moving rates prior to the last election so it wouldnt unduly influence the outcome.

 

[XBenX]

If the topic is important to you why not go grab the data and have a look at it.

Property growth rates and interest rates are freely available as are election dates.

Surely looking at the data is better than speculating. There is no harm in being a cynic - as long as you attempt to answer the questions your cynicism raises.

 

[see_change]

The only link between election year and interest rates is that rates wont move in the few months leading up to an election.

The RBA said that they wouldnt be moving rates prior to the last election so it wouldnt unduly influence the outcome.

My gut feeling agrees.

What happens in the year after the next election is a different matter.... That's when adjustments are likely to happen , then we have time to forget before the next election....


See Change

 

[Bandita]

In general Sydney yields still don't make sense. $300k homes are renting in the low $200s.
Alex

I'm finding this to be pretty typical of Melbourne as well!

Cheers,
Jen

 

[thefirstbruce]

I'm finding this to be pretty typical of Melbourne as well!

Cheers,
Jen

all makes sense when those with equity can borrow more than those without..
and wages and f/t employment haven't kept up to property prices...

 

[MarkB]

Draw your own conclusions - but at least you can now base them on fact.

This graph shows movements in the cash rate (black), standard variable mortgage rate (red), the real mortgage rate (green), and CPI (blue).

Federal election dates from 1993 onwards are also noted.

M

 

[MarkB]

Looking at the graph I don't believe there is anything in the suggestion that the RBA holds off making interest rate changes around election time.

Look at 1993 - the RBA was in the middle of a loosening phase and the election did not stop that.

And in 2001 - they paused for one month, but at the time they cut interest rates by 0.25% in September and again by 0.25% in October they would have known that there was an election coming in November.

Also, the cuts after the 1996 and 1998 elections were not made at the first opportunities they had.

Nor was the interest rate rise after the 2004 election.

That, to me, is pretty solid evidence that the RBA does not wait eagerly in the shadows for federal elections to be over with so that they can get in and do their job.

M

 

[MarkB]

Just noticed the question at the start of the thread - will election year equal lower interest rates?

Even without looking at the graphs - the answer to that is no.

The primary factor influencing interest rates is the inflation rate.

And while the Government can influence the inflation rate through it's actions, it cannot control such factors as exchange rates, oil prices, commodity or resources prices, world economic activity, and so on. All of those affect our inflation rate.

If you do look at the graph you will see the obvious relationship between the rate of inflation (blue line) and the cash rate (black line).

M

 

[dave99]

2001 election is also difficult to analyse because of the one-off effect on CPI of the introduction of the GST. You can see on the graph it is 6% for two periods. This didn't reflect increased real incomes due to tax cuts which occured simultaneously.

The Reserve Bank were aware, however. They were actually cutting the cash rate at the time! - also due to Sept 11 impact on consumer confidence.

- Dave99