# RBA meeting 5-2-08 and interest rates



## MS+Tradesim (4 February 2008)

So who's for what?

I'm thinking 25bps up. I think Hold would be the best bet but they probably want to be seen to be doing something about inflation. By the time the effect of a rate rise actually filters through the economy, I suspect we'll have slowed down anyway making this coming rise redundant.

EDIT: I wonder how much of the sell-off today from the XAO high is due to discounting possible rise tomorrow? Rhetorical question, of course.


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## Real1ty (4 February 2008)

25 for me also.


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## Buffettology (4 February 2008)

25pb rise for me also.


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## adobee (4 February 2008)

I think it will be hold..  however I think if they go up tenants across Sydney are going to cop it !


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## marklar (4 February 2008)

I'm sitting at 90% cash at the moment, trying to decide whether to put it on my mortgage (probably should) or into some oversold blue chip stocks, or park it in a term deposit until a better idea comes along.  I'll decide tomorrow once the news is out, but I'm expecting 25bp rise.

m.


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## moXJO (4 February 2008)

Someone want to throw up a poll of what percentage of peoples portfolios are cash. Not that forum savvy atm


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## Kimosabi (4 February 2008)

The RBA is a sick joke.

The people that create the Inflation, try to control the Inflation that they create through manipulating Interest Rates...

They must have a good laugh at how stupid the Australian people are every month...


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## numbercruncher (4 February 2008)

> Private sector figures showing underlying inflation has risen to record highs leaves the Reserve Bank of Australia (RBA) with little choice but to raise interest rates on Tuesday.
> 
> The TD Securities/Melbourne Institute inflation gauge rose 0.3 per cent in January, after a 0.6 per cent rise in December for an annual rate of 3.9 per cent - the highest annualised rate for the measure since May 2006.
> 
> It was also the second highest recorded in the gauge's history.




http://news.theage.com.au/inflation-figures-point-to-rate-rise/20080204-1py6.html

They should raise it .5pc , Inflation is clearly getting out of control.


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## Kauri (4 February 2008)

As Swan has/will say.. 
*- We Have A Substantial Inflation Problem....*  might be getting us ready..  
Cheers
.........Kauri


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## The Mint Man (4 February 2008)

Kauri said:


> As Swan has/will say..
> *- We Have A Substantial Inflation Problem....*  might be getting us ready..
> Cheers
> .........Kauri



Swan is, well...... a goose!
Already had enough of his buck passing

Cheers


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## ithatheekret (4 February 2008)

I put my hand up for 25 with another 25 to come ......... unless Kauris filled him [ Wayno ] up on his Chateau Plonk ... then we could get 50 , 75 if Kauri runs down and grabs another squeeze box of ala rusty grape 

Believe it not , the RBA will be doing the country a favour , I have more faith in them than Mr C. and he was right wasn't folks ..... rhetorical ............


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## Nyden (4 February 2008)

Up 25, but hoping for 50.


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## Nick Radge (4 February 2008)

25bp has been priced in for some time and today saw the futures start to price in more. The important aspect tomorrow is the rhetoric from the bank.


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## MS+Tradesim (4 February 2008)

So current consensus from our friendly forum punters is that we're about to get the big finger   :bananasmi
(Childish, I know)


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## Real1ty (4 February 2008)

MS+Tradesim said:


> So current consensus from our friendly forum punters is that we're about to get the big finger   :bananasmi
> *(Childish, I know)*




Very clever actually and in volatile times like these, why not have a laugh and a light hearted look at the issues :hide:

Good work for mine


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## Mofra (4 February 2008)

I have to admit to being a "mug punter" who reads the comments of the big banks' cheif economists with interest.
Shane Oliver was tipping on the weekend rates to be put on hold as most lenders had put rates up independantly anyway, with one Mac. Bank economist also stating rates may well be on hold.

The four majors all seem to be betting on 25 pts and it would be rare for all four of them to be wrong on RBA results.


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## bvbfan (4 February 2008)

Others may be interested in the ASX / SFE implied interest rates from the futures on 30 day bills

http://www.asx.com.au/sfe/targetratetracker.htm


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## bvbfan (4 February 2008)

Currently at 89% chance of a 25bp rise


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## MS+Tradesim (5 February 2008)

Officially up 25bps

http://www.rba.gov.au/


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## Kauri (5 February 2008)

As widely expected, the Reserve Bank of Australia lifted its cash rate target by 25bp to an eleven-year high of 7.00% in an effort to keep a grip on inflationary pressures.  With the labour market remaining tight and much of the economy posting firm growth, the central bank is worried that a wage-price spiral might get underway as underlying inflation moves stubbornly above its 2- 3% target band at least until 2009.  Capacity constraints and a shortage of skilled labour, combined with the global trends of rising food and energy prices (exacerbated in Australia by the extended drought), suggest that price pressures will remain firm without some easing in the pace of activity.  Indeed, the RBA noted that a 'significant slowing in demand' may be needed to push inflation lower over time.  Slower global growth alone will not be enough to curb Australia's economy as the commodities boom looks set to continue regardless.  The hawkish tone of the statement suggests that the risks to interest rates remain to the upside


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## ROE (5 February 2008)

RBA is weak, rise it by 0.75 if they really want to contain inflation.

If you put a frog in a bow of water and slowly adjust the temperature up, it will die in the bowl.

If you put a frog in a hot pot of water it jump out and survive.

This 0.25 rise for the last 11 times will slowly kill Australia.
and by the time they realize it we are in recession.

The moral of the story is rise it slowly people learn to adjust even though they cant afford it.
But there is so much adjusting they can do and at some point it will break them. (bankrupt)

Rise it hard and fast, people who cant afford the payment will jump out and survive and savage what they can.


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## Happy (5 February 2008)

Good time to give up smoking, reduce number of trips to play pokies, substitute $30 a bottle of wine with $15 cask, walk more, eat less out, plant some vegies even in a container on the window sill (maybe we should dig up the garden thread), do more ourselves to save on repairs, start making gifts for next X-mass or maybe even drop religion not to have to worry about that bit.

This way we can accommodate even few more 0.25% jumps.


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## MS+Tradesim (5 February 2008)

ROE said:


> If you put a frog in a bow of water and slowly adjust the temperature up, it will die in the bowl.
> 
> If you put a frog in a hot pot of water it jump out and survive.




Let the intelligent forum posters here become part of the movement to put this urban myth in the ground where it belongs. Wonder how many hapless frogs have suffered through people attempting to test it? :nono:

http://www.snopes.com/critters/wild/frogboil.asp


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## Julia (5 February 2008)

Is there an option to continuing to increase interest rates?
It simply isn't working.  Inflation continues to rise unabated.

Doesn't the continued rate rise just affect people with mortgages  - I think about a third of the population -(and I guess businesses), while actually benefiting those of us who have cash to invest?  With the ongoing big spend up in Australia, it seems not too many are actually inhibited in their spending by the rate cuts.

And then there's all those billions in tax cuts to further fuel inflation still to come.


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## roland (5 February 2008)

Happy said:


> Good time to give up smoking, reduce number of trips to play pokies, substitute $30 a bottle of wine with $15 cask, walk more, eat less out, plant some vegies even in a container on the window sill (maybe we should dig up the garden thread), do more ourselves to save on repairs, start making gifts for next X-mass or maybe even drop religion not to have to worry about that bit.
> 
> This way we can accommodate even few more 0.25% jumps.




Then you would be putting little, struggling retail businesses like us out of business


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## Happy (5 February 2008)

Irrespectively of what I have written, it always happens that people reduce other expenses before they give up on mortgage repayments.


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## REA (5 February 2008)

One aspect of this that I don't understand, with all the money leaving the stock market, the amount of superannuation being collected each week and the increased interest on savings currently in banks, how are the banks going to afford the interest on savings.  Lots of money must be going back into the banks.  We are told to cut credit card spending and we know that home loans are down excluding refinancing so that will make things more difficult.

A few of my friends have rung their advisors and reajusted their superannuation to include more cash, won't money from America also come in? I just can't understand it how it can work how can the banks afford to keep interest rates up.


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## Kimosabi (5 February 2008)

Well gee, I just checked the RBA's M3 figure which was running at 16% last year.

Now I wonder where all that inflation they perport to be fighting is coming from...


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## numbercruncher (5 February 2008)

> Rate rise pushes Aussies to 'verge of crisis'
> Tuesday Feb 5 15:00 AEDT
> By Sean Cusick
> ninemsn
> ...




http://news.ninemsn.com.au/article.aspx?id=375566

Ahh debt the root of all evil, if the Consumer Credit Legal Centre is being flooded already, imagine after this rate rise flows through and the other one thatll probably arrive next month.

Something is going to break I can feel it in my loins 

I think the PM should go on TV and spell it out in no uncertain terms that Inflation is sky high and rates WILL keep rising, people sit there hoping for the best with absolutely no Idea, like sheep to the slaughter.

Dark clouds are massing I fear.


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## ithatheekret (5 February 2008)

Kauri said:


> As widely _rejected_, the Reserve Bank of Australia lifted its cash rate target by 25bp to an eleven-year high of 7.00% _(which means the banks will stick em for 9% as soon as they find their rock proof suits }_in an effort to keep _the grin off_ inflationary pressures.  With the labour market remaining _in China and India_ and much of the economy posting firm growth, the central bank is worried that a wage-price spiral might get underway as underlying inflation moves stubbornly above its 2- 3% target band at least until _2099_.  Capacity constraints and a shortage of skilled labour, combined with the global trends of rising food and energy prices (exacerbated _by massive beer and lolly water drinking_in Australia by the extended drought), suggest that price pressures will remain firm without some easing in the pace of activity.  Indeed, the RBA noted that a 'significant slowing in demand' may be needed to push inflation lower over time _and decided to drink all the wine this time round instead _.  Slower global growth alone will not be enough to curb Australia's economy as the commodities boom looks set to continue regardless.  The hawkish tone of the statement suggests that the risks to interest rates remain to the upside_and if we don't like it , practice more drinking_





_Couldn't resist_


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## Kauri (5 February 2008)

numbercruncher said:


> Something is going to break I can feel it in my loins
> 
> I think the PM should go on TV and spell it out in no uncertain terms that Inflation is sky high and rates WILL keep rising, people sit there hoping for the best with absolutely no Idea, like sheep to the slaughter.
> 
> Dark clouds are massing I fear.




over dow jones a little whiles back  (an hour or so)  



> Latest Rate Hike Will Really Hurt .. Kevin Rudd


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## Kimosabi (5 February 2008)

numbercruncher said:


> http://news.ninemsn.com.au/article.aspx?id=375566
> 
> Ahh debt the root of all evil, if the Consumer Credit Legal Centre is being flooded already, imagine after this rate rise flows through and the other one thatll probably arrive next month.
> 
> ...




Maybe another Recession the Reserve Bank say's we have to have....


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## treefrog (5 February 2008)

REA said:


> One aspect of this that I don't understand, with all the money leaving the stock market, the amount of superannuation being collected each week and the increased interest on savings currently in banks, how are the banks going to afford the interest on savings.  Lots of money must be going back into the banks.  We are told to cut credit card spending and we know that home loans are down excluding refinancing so that will make things more difficult.
> 
> A few of my friends have rung their advisors and reajusted their superannuation to include more cash, won't money from America also come in? I just can't understand it how it can work how can the banks afford to keep interest rates up.




back in the seventies when inflation was at about the same as now ie becomming noticed and causing concern amoung the masses who had enjoyed many low inflation years I proffered to a businessman that inflation "could not keep rising at the current rate"
his response was - get used to it and adjust because it will
he was right, I was wrong, but he did change my attitude long before that conclusion was obvious


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## treefrog (5 February 2008)

Happy said:


> Good time to give up smoking, reduce number of trips to play pokies, substitute $30 a bottle of wine with $15 cask, walk more, eat less out, plant some vegies even in a container on the window sill (maybe we should dig up the garden thread), do more ourselves to save on repairs, start making gifts for next X-mass or maybe even drop religion not to have to worry about that bit.
> 
> This way we can accommodate even few more 0.25% jumps.




good points there happy - 10% tithing saving alone will cover things up to 17% interest


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## dalek (5 February 2008)

I recall in the 80's when I had 2 residential properties one 50% geared and the other 90%. At that time interest charges peaked @ 17% 
While there was a need to show some spending restraint but I did not need to sell a kidney or start farming the backyard to survive. In all of the current discussions there seems to be a fairly comprehensive underestimation of the proven ability of the world to adapt to it's prevailing circumstances.
Will there be some people or businesses marginalised or seriously impacted, sure, regretably that's always the case, but let's not fall for the daily newspaper/TV reports and photos of melacholy looking couples with 2.1 kids living in Struggleville. You can find them any day of the week.
Rampant inflation is not anyones prefered option and neither is a market crash but is +0.25% the end of the world, give me a break.


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## wayneL (5 February 2008)

dalek said:


> I recall in the 80's when I had 2 residential properties one 50% geared and the other 90%. At that time interest charges peaked @ 17%
> While there was a need to show some spending restraint but I did not need to sell a kidney or start farming the backyard to survive. In all of the current discussions there seems to be a fairly comprehensive underestimation of the proven ability of the world to adapt to it's prevailing circumstances.
> Will there be some people or businesses marginalised or seriously impacted, sure, regretably that's always the case, but let's not fall for the daily newspaper/TV reports and photos of melacholy looking couples with 2.1 kids living in Struggleville. You can find them any day of the week.
> Rampant inflation is not anyones prefered option and neither is a market crash but is +0.25% the end of the world, give me a break.




Don't forget, prices are set at the margins. It's those people who have massive influence, collectively.


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## macka69 (5 February 2008)

The new government should introduce variable superannuation contributions as part of monetary policy.

Official interest rates are a blunt instrument.  Not everyone has a loan.  Higher interest rates add to wage and price pressures.

I'd like to see a “Superannuation Buffer” of say 2% of earnings.  9% Superannuation Guarantee (SG) + 2% Superannuation Buffer (SB) = 11% total.  In periods of rising inflation, direct the full 2% SB into superannuation, to be treated the same as SG.  Employees’ incomes drop slightly, with a corresponding reduction in spending.  In “neutral” periods, direct 1% into super and the other 1% into normal earnings.  In periods of slower growth / lower inflation, direct the full 2% into normal earnings to boost spending and economic activity.

The Super Buffer would facilitate quick changes in the level of spending in the economy.  It would “share the pain” because it would affect more people than changes in interest rates.  And it would be a “sellable” change; when, say, the full 2% SB is directed into superannuation, employees will see that it’s still their money (they just can’t spend it!)


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## wayneL (5 February 2008)

macka69 said:


> The new government should introduce variable superannuation contributions as part of monetary policy.
> 
> Official interest rates are a blunt instrument.  Not everyone has a loan.  Higher interest rates add to wage and price pressures.
> 
> ...




The thing is (presuming that savings interest rates reflect official rates) unless you are willing to screw over savers, interest rates must represent a premium to the inflation rate lest people saving are completely debased.

Also, if in periods of high inflation the 2% buffer is directed into super, this money will go directly to inflating asset prices and encouraging malinvestment... precisely the wrong thing in a high inflation environment.


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