# RBA April '09 Interest rate decision



## Uncle Festivus (6 April 2009)

A bit of uncertainty over this one, economists are divided? I think they will give another 0.25 cut?


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## MACCA350 (6 April 2009)

I hope they will hold rates........and wish they'd increase rates.......I'm getting sick of such low interest earnings

It's like taking money from those who lend it to the banks and giving it to those who are borrowing it from the banks..........I'm earning half what I was only a few months ago 

cheers


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## ivant (6 April 2009)

MACCA350 said:


> I hope they will hold rates........and wish they'd increase rates.......I'm getting sick of such low interest earnings
> 
> It's like taking money from those who lend it to the banks and giving it to those who are borrowing it from the banks..........I'm earning half what I was only a few months ago
> 
> cheers




look on the bright side. Inflation goes up, and that means your stock portfolio, or other assets benefit.


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## Awesomandy (6 April 2009)

I vote for a hold. The stimulus payments are coming through, and in today's environment, a drop > 25 points is needed to have any effect. The rates are quite low already as well, so there really isn't much ammo left for later.


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## MrBurns (6 April 2009)

I'm sort of hoping they'll bump them up to around 15% just for something different.


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## Nero64 (6 April 2009)

Increase it by 1%..that will wipe the smiles off the first home buyer's faces 

No seriously I reckon they will hold for the time being. Glen Stephens has probably backed a bit on the aussie and he doesn't want his profits to go backwards now does he


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## MACCA350 (6 April 2009)

MrBurns said:


> I'm sort of hoping they'll bump them up to around 15% just for something different.



I like the sound of that

cheers


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## MRC & Co (6 April 2009)

Yeh, this will be interesting.

I think this wk will see the top being set on this rally, perhaps it already was today, with little to no interest either way, US looking weak tonight after hitting 850s on the S&P and bouncing back down and the chart looking in a nice shorting position, intersecting with a large zone of resistance.  It is tanking right as I type after rolling over.

The RBA will take into account both GDP and CPI.  The former which saw a negative for the first quarter last time around, and one more will mark the official recession here in OZ.  CPI was high, but is rapidly declining, from 1.5% to 1.2% to -0.3% last quarter, another quarter of similar decline and negativity in the inflation rate would see a drop out of the 2-3% target band.

Stimulus package unfortunately, won't have a large affect on GDP nor inflation IMHO.  

Result:  I would not be surprised to see a cut of 0.5% considering the aforementioned factors and the fact that we are rapidlly approaching a deflationary cycle.  

Then again, I am not the RBA, but will be looking for a bigger slash than expected, at 0.5%.  How will this be interpreted and the market react?  I will look for the obvious quick spike by traders hitting the market, but after that initial move, it's anyones guess.  I will not be holding strong longs, that's for sure.  

Either way, interesting times once more.  

GL.


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## Julia (6 April 2009)

MrBurns said:


> I'm sort of hoping they'll bump them up to around 15% just for something different.



When you're looking for a seconder on your nomination to the Reserve Bank Board, you can count on me, Mr Burns.


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## Amor_Fati (6 April 2009)

I think they will cut, probably by 25 basis points.
My thinking is that the negative GDP data and the probable ineffectiveness of the tax bonuses, together with the fact that the banks will probably pass on less than the full amount, leave little argument not to.


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## MrBurns (7 April 2009)

Probably .25% (whats all the basis points BS?) just to keep the ball rolling it seems imterest rates globally are almost nil so we will head thesame way.

What I'd like to know is what do people do in theUS and particularly Japan do to get income from cash ? rate in Japan is 1/10th of 1% ? ????????????????

Julia , the limo picks you up at 10 so we can go and explain to the RBA , together, that we ARE different so interest rates should be going UP not DOWN.........

we arent like the rest of the world.
our banks are robust (dont ya hate that word?)
we are better placed to handle the downturn, _repeat forever_
we are invincible
we have Swan and Rudd

all good arguments ?


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## Timmy (7 April 2009)

I'm at half a pussent.


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## kincella (7 April 2009)

my 2 cents worth....
the RBA meets today..so we know at 2.30pm...but the poll on this site, does not close until 11.30 tomorrow the 8th ????
the RBA was told last month by the IMF to cut rates and cut them fast....but they did nothing...
I believe the rate should be cut in line with most of the g20 brigade down to 2% or less
so they should cut it by 1%.....but I think it will be cut to .50
if they think the stimulous package coming out this week will sae them...wrong
unemployment is the big issue


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## Sir Osisofliver (7 April 2009)

I find my thoughts mirror a lot of what MRC & Co had to say.



> I think this wk will see the top being set on this rally, perhaps it already was today, with little to no interest either way, US looking weak tonight after hitting 850s on the S&P and bouncing back down and the chart looking in a nice shorting position, intersecting with a large zone of resistance. It is tanking right as I type after rolling over.




I concur with the above and I'll go out on a limb a bit and say that I expect the negativity on our market will last between six and nine weeks.


> The RBA will take into account both GDP and CPI. The former which saw a negative for the first quarter last time around, and one more will mark the official recession here in OZ. CPI was high, but is rapidly declining, from 1.5% to 1.2% to -0.3% last quarter, another quarter of similar decline and negativity in the inflation rate would see a drop out of the 2-3% target band.
> 
> Stimulus package unfortunately, won't have a large affect on GDP nor inflation IMHO.




I agree with all of this as well.



> Result: I would not be surprised to see a cut of 0.5% considering the aforementioned factors and the fact that we are rapidlly approaching a deflationary cycle.




Here however our opinions diverge. I think the RBA will hold interest rates at the meeting today and keep the powder dry for the next meeting. At the next meeting however I anticipate that the drop will be another 25 basis point (hey Burns - whats the point of learning the jargon if you don't use it?)  drop but won't be surprised to see a 50 basis point fall.



> Either way, interesting times once more.




Oh my yes - and fun too 

Cheers

Sir O


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## Timmy (7 April 2009)

kincella said:


> unemployment is the big issue




Good point kincella.

The RBA is specifically required to pay attention to employment levels; from the Reserve Bank Act, cited at the RBA website:

_The Reserve Bank Board's obligations with respect to the formulation and implementation of monetary policy are laid out in the Reserve Bank Act. Section 10(2) of the Act, which is often referred to as the Bank's 'charter', says:

    'It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:

    (a) the stability of the currency of Australia;
*(b) the maintenance of full employment in Australia*; and
    (c) the economic prosperity and welfare of the people of Australia.'_


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## kincella (7 April 2009)

Timmy, since you are a mod..why is the poll open until tomorrow, when the result will be known at 2.30 today ???


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## Timmy (7 April 2009)

kincella said:


> Timmy, since you are a mod..why is the poll open until tomorrow, when the result will be known at 2.30 today ???




I think it is because the options available to someone posting a poll are quite limited; it doesn't appear to be possible to fine-tune the poll closing time.


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## Uncertain Times (7 April 2009)

If they keep rates high will we continue to see the AUD rise or is it rising due to the US Treasury printing more money and devaluing the USD?

Primary producers never benefit from a high AUD and it may finish off local manufacturing if the AUD is so to high.

I think 0.5% cut to get the AUD down. The Big4 arent going to pass the cut on anyway as Gail Kelly said yesterday on Sunrise that they are having issues with funding costs.


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## noirua (7 April 2009)

Let's cut those rates down to 2% immediately!  No more silly sallying around!


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## MS+Tradesim (7 April 2009)

RBA decision: -0.25%, now at 3.00%


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## Amor_Fati (7 April 2009)

MrBurns said:


> Probably .25% (whats all the basis points BS?) just to keep the ball rolling it seems imterest rates globally are almost nil so we will head thesame way.
> 
> What I'd like to know is what do people do in theUS and particularly Japan do to get income from cash ? rate in Japan is 1/10th of 1% ? ????????????????




Basis points are just a different measure, 100 points = 1%

Re cash income, that is one of the goals of expansionary monetary policy (cutting rates). People will either spend their income or save it, by making saving unattractive hopefully they will spend more boosting consumption. It would not be much fun to be managing funds near or at retirement age though, stuck with a choice between miniscule interest or the volatility of equity markets at the moment. (Even though it may be a great time to invest in those markets in the longer term)


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## MrBurns (7 April 2009)

Amor_Fati said:


> Basis points are just a different measure, 100 points = 1%
> 
> Re cash income, that is one of the goals of expansionary monetary policy (cutting rates). People will either spend their income or save it, by making saving unattractive hopefully they will spend more boosting consumption. It would not be much fun to be managing funds near or at retirement age though, stuck with a choice between miniscule interest or the volatility of equity markets at the moment. (Even though it may be a great time to invest in those markets in the longer term)




I was being facetious about the basis points comment it just seems to be a wankers way of expressing it, I think most people undersand percentage points.

Yes its a real problem for those with cash and it looks like it will get worse before it gets better.


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## MACCA350 (7 April 2009)

AAARRRRGGGHHH cr@p


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## YOUNG_TRADER (7 April 2009)

MACCA350 said:


> AAARRRRGGGHHH cr@p




lol me to mate me too


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## MRC & Co (7 April 2009)

lol, well we were both wrong Sir O with our final conclusion.

Rate cut was as expected,


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## Timmy (7 April 2009)

MRC & Co said:


> lol, well we were both wrong Sir O with our final conclusion.
> 
> Rate cut was as expected,




You two are not alone ... I missed it by _that _much


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## kitehigh (7 April 2009)

MRC & Co said:


> lol, well we were both wrong Sir O with our final conclusion.
> 
> Rate cut was as expected,




Yep and as expected the banks have not cut or cut only .10, so the banks are the only winners out of this latest RBA cut.


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## MACCA350 (7 April 2009)

kitehigh said:


> Yep and as expected the banks have not cut or cut only .10, so the banks are the only winners out of this latest RBA cut.



Yet they will hit savings accounts with the whole .25 cut if not more


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## Aussiejeff (7 April 2009)

I wonder what the bwanks will do when the reverse process eventually and inevitably hits the markets.

If the ride down in interest rates has been any guide, it will likely be a case of "RBA ups rates by 0.5%" and "banks up mortgage rates by 1.5%, up savings rates by only 0.25%".


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## MRC & Co (7 April 2009)

Amor_Fati said:


> Re cash income, that is one of the goals of expansionary monetary policy (cutting rates). People will either spend their income or save it, by making saving unattractive hopefully they will spend more boosting consumption. It would not be much fun to be managing funds near or at retirement age though, stuck with a choice between miniscule interest or the volatility of equity markets at the moment. (Even though it may be a great time to invest in those markets in the longer term)




Actually the main reason rates are cut for these theorists, is to encourage lending and investment.


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## kitehigh (7 April 2009)

Aussiejeff said:


> I wonder what the bwanks will do when the reverse process eventually and inevitably hits the markets.
> 
> If the ride down in interest rates has been any guide, it will likely be a case of "RBA ups rates by 0.5%" and "banks up mortgage rates by 1.5%, up savings rates by only 0.25%".




Yes I reckon they will do exactly that and use the same excuse, overseas borrowing costs are high... blah blah lie lie blah. In reality CEO needs his 20 million bonus to fund the lifestyle that he is accustomed to.


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## MrBurns (7 April 2009)

MACCA350 said:


> Yet they will hit savings accounts with the whole .25 cut if not more




If they do I'll take the lot out and put it with the Bendigo Building Society just to spite them.


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## Gundini (7 April 2009)

It was expected.

We are lucky to have the flexibility to cut rates at all, even though so minor.

Where to from here?

Didn't seem to much affect the dollar, but there was a noticible effect on the Gold index (AUD)

Anyway, going to Fiji for 10 days next week, don't really give a rats...


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## MrBurns (7 April 2009)

Gundini said:


> It was expected.
> 
> We are lucky to have the flexibility to cut rates at all, even though so minor.
> 
> ...




Be sure to take a DVD of 10 of Rudds speeches.

For $10 more you only get 5

Have a great time


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## MACCA350 (7 April 2009)

MrBurns said:


> If they do I'll take the lot out and put it with the Bendigo Building Society just to spite them.



 just be sure to make them hand it all over to you in cash......just to pour salt in the wound

I wonder if the banks would topple over if everyone with cash in them took it all out.........actually they probably would allow that to happen and start freezing accounts

cheers


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## kitehigh (7 April 2009)

MACCA350 said:


> I wonder if the banks would topple over if everyone with cash in them took it all out.........actually they probably would allow that to happen and start freezing accounts
> 
> cheers




Not the big 4 as they have the Govt Guarantee (read tax payer Guarantee), and yes they would freeze everyone's account and pull down the shutters if there was a run on the banks.  Than we would be back to food stamps.


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## sinner (8 April 2009)

Hi guys,

I just spotted this rather insightful comment at the very bottom of an ABC News article about banks resisting pressure to pass on the rate cut (except CBA passed on a portion of the cut, probably gaining them more customers in the meantime).

http://www.abc.net.au/news/stories/2009/04/07/2537624.htm



> Andrew:
> 
> 07 Apr 2009 8:26:21pm
> 
> At the risk of being electronically lynched, the reason the banks have not lowered rates are probably sound even if they are not innocent. Since being given a government guarantee, our dear banks have borrowed massively from international sources of credit. It is the cost of these loans which is determining the price of credit in Australia, and it remains fairly tight. BS about the government surplus aside, this country has to continue borrowing every month to finance its collective debts or face a current accounts crisis and it is the banks which have to secure a lot of these loans. So I suspect they are being cautious because, really, the availability of credit to them is not improving. Not good, I know, but thats what you get when you outsource your economy so you can buy giant televisions for ten years.




Commenter Andrew raises an interesting perspective, it has been reported that the gov guaranteed banks have *attracted capital* but his perspective is they have *borrowed massively* to continue funding the shenanigans.

This raises a rather uninviting question. Just how big is the demand for debt? 
There is still USD2.5 trillion of debt issuance to come from the Fed and UST *just this year, with forecast USD13tr for the decade, and our own comparatively puny debt market will have to deal with what is still a proportionally large debt issuance to fund the cash splash and insulation bats. 

Mish has posted an article pointing out how ineffective the Feds efforts to monetise debt are, as the bond vigilantes are clearly aware the Feds purchases are a "drop in the bucket" compared to the huge issuances still to come.

http://globaleconomicanalysis.blogspot.com/2009/04/feds-effort-to-roll-snowball-uphill-is.html

In the end you can't disagree with Andrew, banks are borrowing hugely on the basis of a guarantee which can only be upheld through currency debasement. They are loaning the money to us and we use it for credit cards and home loans and whatever else at rates above most everything else on the wholesale debt market.
The international wholesale debt markets are the only place the banks can get these huge infusions of capital, and currently they are. If they get muscled out by a tidal wave of government debt hitting the markets, what happens? 

All I can think of is that then the government will simply have to issue more debt in place of the banks? 

My brain feels like this thinking about it:

*


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## Aussiejeff (8 April 2009)

kitehigh said:


> Yep and as expected the banks have not cut or cut only .10, so the banks are the only winners out of this latest RBA cut.




The Big4 Bwanks are claiming that the interest cost of financing their ongoing "programs" is actually GOING UP. So, if that is true they are becoming caught between a rock and a hard place and will not reduce mortgage rates any further, no matter how far the RBA wants to push them.

So, does this mean this last rate cut by the RBA was the last bullet left? 

If so (and I think that is what the Big4 are saying in effect) things could be about to get a lot worse here in the finance / banking sector than we think. Rather than the RBA "keeping some powder dry" for more rate cuts, the Big4 are hastily pouring cold water on what powder remains.

Hmm. If the banks claim they are so hard pressed at this early stage, it also raises the spectre of a series of "unexpectedly sharp" mortgage rate rises when the massive wads of World M3 start to puff up the dreaded inflation bubbles all over the shop.

We are staring at one Mutha of a rickety rollercoaster, but some just can't see it yet.


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## Amor_Fati (8 April 2009)

MRC & Co said:


> Actually the main reason rates are cut for these theorists, is to encourage lending and investment.




True, although cuts of 0 to 10 basis points won't excite many. The extra 30% depreciation claimable in the first year has the same aim, and will probably be much more effective. (But at the cost of an increased deficit).

The other major effect is the cashflow effect, from all those with variable rate mortgages having an extra $50 a month to spend. Also I guess in the current climate with many businesses struggling, the reduction in interest payments might allow them to struggle a bit longer, which would benefit employment a little. Although again this rate cut has not had much traction on the "real" interest rates Australians borrow money at. 

Just for completeness the other two effects are a lowering of the exchange rate, theoretically improving international competitiveness. And an increase in asset prices due to the decreased cost of finance, theoretically encouraging people to spend, known as the wealth effect. Of course we never see these things in isolation, but that's the beauty of economics.


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