# Interest rate rise?



## Gundini (2 April 2007)

SYDNEY (Dow Jones)--Stronger than expected economic data have pushed the Australian share market lower by midday Monday, with investors fearing the Reserve Bank of Australia will tighten interest rates after Tuesday's board meeting.

Do you think the RBA will raise rates?

You would think a raise would push the AUD to 85 cents to the USD.

Can't be good for exports, housing markets, banks etc...


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## falconx (2 April 2007)

IMO if they don't raise them now they are just delaying the inevitable and will have to raise them in a months time. Hopefully this will be the end of it though.


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## Buffettology (2 April 2007)

I beleive they will rise.

The housing market is still overvalued, especially for newcomers to the market, a large governmental initiative to make it more affordable.  

The major thing though, is the cash that is being throw around at the moment, something has to give, and the best way to contain it is with an IR rise.  

Cant be good for exports, or trade balance.  But last I read, exports are growing faster than imports due China etc.  So this shouldnt have too bigger effect on that area of concern.


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## Glenhaven (2 April 2007)

I voted for no rise, but the data released to-day on retail sales make it more likely. I note however that building approvals are still falling and I still stay with no rise as a rise would put the building industry in a sharper decline. This along with an increase in mortgage defaults is a high price to pay.


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## wayneL (2 April 2007)

They should raise .5

Pain now is better than more pain later.

Parity anyone?


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## Glenhaven (2 April 2007)

Buffettology said:


> I beleive they will rise.
> 
> The housing market is still overvalued, especially for newcomers to the market, a large governmental initiative to make it more affordable.
> 
> .




The decision of course cannot be directly influenced by the Government.


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## Buffettology (2 April 2007)

Glenhaven said:


> The decision of course cannot be directly influenced by the Government.




Of course, but I would think the RBA takes this into account (though, as an economist, I have not worked at the RBA (only for Treasury), so I am not 100% sure exactly on what basis the RBA decides rises.  Of course, if the IR rise was going to crash the housing market, then they would not increase them, but a .25% rise is not going to do this, well at least there are very low probabilities.


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## Knobby22 (2 April 2007)

They don't want to raise rates as the dollar is already too high but they want people to be more careful with credit. By the fact that everyone is expecting a rise, I think they have succeeded.


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## bean (2 April 2007)

Well we have several problems they raise interest rates the dollar gets stronger (stock market corrects 10% or more) 
Leave interest rates unchanged inflation comes in play.

However they raise interest rates. then budget lower tax rates and thay way they put more money in (printed more) to keep things ticking along. and maybe some finds its way into the market so the correction isn't as bad.

By lowering the tax rates may stop the housing from falling as its like taking from one hand and giving back in the other


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## Glenhaven (2 April 2007)

I am surprised that the vote is strongly that there will be interest rate rise. Maybe I have to rethink as it will certainly impact our market.


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## clowboy (2 April 2007)

My yes vote will probally turn out to be wishful thinking


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## Gundini (3 April 2007)

wayneL said:


> They should raise .5
> 
> Pain now is better than more pain later.
> 
> Parity anyone?




I agree with the pain now theory wayneL, but .5 rise would send Western Sydney mortgage holders into a flap. They are already struggling to keep up repayments as it is. Then again you could argue this type of rise would certainly make housing more affordable for those without a mortgage. Also, a larger rate rise brings us closer to larger rate cuts, as the global slowdown starts to kick in.

Still believe .25 would be the maximun rise, although I am leaning to no rate increase, contrary to the poll ATM...


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## Smurf1976 (3 April 2007)

Gundini said:


> I agree with the pain now theory wayneL, but .5 rise would send Western Sydney mortgage holders into a flap. They are already struggling to keep up repayments as it is. Then again you could argue this type of rise would certainly make housing more affordable for those without a mortgage.



It's truly amazing the lengths we seem prepared to go to in order to prop up the real estate bubble.

If only we put half as much effort into reducing poverty, fixing the environment, health, water, roads...

I'm expecting a 0.25% rise fairly soon. If not April then May or at the latest June.


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## Gundini (3 April 2007)

Smurf1976 said:


> It's truly amazing the lengths we seem prepared to go to in order to prop up the real estate bubble.
> 
> If only we put half as much effort into reducing poverty, fixing the environment, health, water, roads...
> 
> I'm expecting a 0.25% rise fairly soon. If not April then May or at the latest June.




I totally agree Smurf, but I think the imbalance between the states is the bigger picture for the RBA The booming markets in WA and QLD needs to be curbed, while the sagging NSW market needs growth.

A case of damned if you do, and damned if you don't. 

Smurf, you have my vote regarding reducing poverty, fixing the environment, health, water, roads... still, while there are many promises, there is less conviction!

This is why they describe the governments as "Mirrors"... Always looking into it, but all they see is themselves.


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## noirua (3 April 2007)

No interest rate rise needed and Premier, John Howard did confirm on Bloomberg that he realised the countries miners are hit by a strong Aussie Dollar. A bit of inflation isn't such a bad thing at times - John Howard didn't say that though.


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## Bush Trader (3 April 2007)

noirua said:


> No interest rate rise needed and Premier, John Howard did confirm on Bloomberg that he realised the countries miners are hit by a strong Aussie Dollar. A bit of inflation isn't such a bad thing at times - John Howard didn't say that though.




I wish Mr Howard would put the rising dollar in context with our other export industries such as agriculture. What are farmers struggling to recover from a drought if commodity prices are put under pressure due to the rising dollar, and input have also increased due to high world demand due to expanded global plantings?  

In regards to infation ask a Zimbabwean what they think of a little bit of infalation, 400% p/a was a walk in the park compared to 1800% p/a, all due to an eratic despots so called economic restructure and land reform policies

We have it easy compared to some.

Cheers


BT

PS: I believe that there will be a rate rise, the pain in the east will be used to curtail the excesses of the west.  I forcast that the $A will get to 91c by June, this may cool the commodities job down a tad.  The economy is strong enough to handle it, however there will be select groups that will feel much more than just pain.


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## noirua (3 April 2007)

Bush Trader said:


> I wish Mr Howard would put the rising dollar in context with our other export industries such as agriculture. What are farmers struggling to recover from a drought if commodity prices are put under pressure due to the rising dollar, and input have also increased due to high world demand due to expanded global plantings?
> 
> In regards to infation ask a Zimbabwean what they think of a little bit of infalation, 400% p/a was a walk in the park compared to 1800% p/a, all due to an eratic despots so called economic restructure and land reform policies
> 
> ...





Hi. If people believe what you say, 91 cents to the Dollar, then the increase in currency hedging will be enormous. How long ago were they talking about 50 cents to the US Dollar?  Not that many years ago.


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## Buffettology (3 April 2007)

Final thoughts?  

IR rise of .25% announced tomorrow.  Market suffers a fall, rebounds soon after of course.  Though still fear creeping into peoples minds, US announces bad economic climate as the year goes on, our dollar rises and puts some perssure on the commodities sector.  More fear creeps in, by the end of the year, we see a crash or very large correction.  I could see this taking place quiet easily.

Though I did hear today that inflation is not as much of a concern as previously thought.


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## brendan87 (3 April 2007)

The other thing to remember that the more interest rate (hike) speculation there is ... which has pushed up the $A considerably since the last rate rise has a tendency to reduce import inflation. The price of imported products (many of which are members of the CPI "basket") goes down as the $A goes up. And the RBA is also aware of the rental squeeze (rent being a big part of the CPI - and recently, a main driver of the CPI!) and that increasing interest rates will make the rental crisis (and CPI) worse. However - in light of these arguments I still think the next rate rise is the one "we had to have" and sooner is better than later. And it would be more politically sensitive to hike rates 1/4 points now than closer to the election, PLUS, doing so now will hopefully temper whatever expansionary (ballot-buying) budget is released before the election. But it's nothing to get depressed about since many of us rotated some funds into cash over the last few months (and just received a cheque from a certain BHP-buyback  ) and will aprecaite the extra .25% while waiting to better value coming up. Note; anyone who took profits around the time of the mini-correction can benefit from any coming interest rate rise in 2 ways: 1) better return on cash assets and 2) better able to take advantage of opportunities that will emerge as market valuations adjust to higher interest rates. ...... maybe I'm an optimist .... and maybe I'm trying to forget the fact that my ML rate will increase too...alas - that's just my  worth


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## bvbfan (3 April 2007)

A rate rise looks like once in the next two months, I think the RBA will wait for CPI data on April 27 then hike at May meeting.

May provides us with a budget and let's see what goodies the givernment has in hand? Will they try to buy the election and fail miserably forcing the RBA to do another rate rise.

Maybe they will structure it so they will give you something if they get back in only for the RBA to take it all back and then some.
Seems Australians are dumb enough to fall for it again.


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## Gundini (4 April 2007)

brendan87 said:


> And it would be more politically sensitive to hike rates 1/4 points now than closer to the election, PLUS, doing so now will hopefully temper whatever expansionary (ballot-buying) budget is released before the election.




This is a good point, although I believe the RBA is independant of political bias, but as we know all is not always as it appears!

So it seems from our consensus that rates will rise .25%.

You would have to think the market will pull back after the ann. May be a buying oppotunity...

Is it 10am EST they announce?


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## bvbfan (4 April 2007)

They announce at 9.30


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## brendan87 (4 April 2007)

It's 9:30. And we are lucky to have an independent CB in Australia. But don't forget that the RBA board members are appointed by the commonwealth govt. so while if absolutely needed I'm certain they would not hesitate to change mon. policy close to an election if the macro conditions warranted - I think that where practical, they would sooner work around the electoral cycle. Plus the CB has been under so much criticism from the Lib. party because they stupidly promised low interest rates last election and the public, not knowing any better, gobbled up the bait - so while hiking rates against the election-wishes of the incumbents will gain the RBA great credibility in the eyes of economists, constant media outcry by the Lib. party over the RBA's "reckless" rate hikes (reckless towards the 'mortgage' belts in the electorates in suburban NSW/VIC - where failure to raise rates would be reckless towards 'boom' areas like WA, SE QLD where the housing market is still very frothy and wage/inflation pressures are huge) tends to undermine the RBA in the general public's eyes. Remember that the ultimate target of mon. policy is to change aggregate demand (to change inflation) - of which consumption is the main element - and middle-australia is the nation's "consumer". The RBA has even explicitly targetted consumers in its publications, warning of excessive spending and rising personal debt levels. Anyway, to more pertinent issues: I wonder what this morning holds.....


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## Glenhaven (4 April 2007)

Poll has closed up bit. The experts (????) now say very likely. Property prices in the mortgage belt will be impacted.


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## Gundini (4 April 2007)

brendan87 said:


> It's 9:30. And we are lucky to have an independent CB in Australia. But don't forget that the RBA board members are appointed by the commonwealth govt. so while if absolutely needed I'm certain they would not hesitate to change mon. policy close to an election if the macro conditions warranted - I think that where practical, they would sooner work around the electoral cycle. Plus the CB has been under so much criticism from the Lib. party because they stupidly promised low interest rates last election and the public, not knowing any better, gobbled up the bait - so while hiking rates against the election-wishes of the incumbents will gain the RBA great credibility in the eyes of economists, constant media outcry by the Lib. party over the RBA's "reckless" rate hikes (reckless towards the 'mortgage' belts in the electorates in suburban NSW/VIC - where failure to raise rates would be reckless towards 'boom' areas like WA, SE QLD where the housing market is still very frothy and wage/inflation pressures are huge) tends to undermine the RBA in the general public's eyes. Remember that the ultimate target of mon. policy is to change aggregate demand (to change inflation) - of which consumption is the main element - and middle-australia is the nation's "consumer". The RBA has even explicitly targetted consumers in its publications, warning of excessive spending and rising personal debt levels. Anyway, to more pertinent issues: I wonder what this morning holds.....




Nice post Brendan, you seem to have a good grasp of monetary policy.

Just a thought, does anybody know why they move rates in .25% increments?  Is it for simplicity of round numbers?

Wouldn't it be more prudent to move rates in .01%'s ?

I know more complex, but could be more precise. Let's face it, it has been a while since I've used my abacus...


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## Gundini (4 April 2007)

Interest Rates Unchanged! 6.25%


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## brendan87 (4 April 2007)

rates unchanged!


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## Gundini (4 April 2007)

You would think today the market would fly... Dollar down, metals up, except Gold, Dow up big, interesting to see what happens...


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## brendan87 (4 April 2007)

I think this is a very conservative decision and I think that the RBA will have less breathing room in the instance of future data releases ie. if CPI/Unempl/GDP data come in unexpectedly high/low then the RBA will be forced to move = more equity market volatility !! YAY (not!) but I suppose in the short-term, self-interested mindset the decision is good. Should be another profitable day on the ASX, especially with the good lead from the Dow, lower AUD will help some co's (although watching the AUD it is now up to 8080 from 8065(just following 9:30 - I was expecting a bit more slippage).


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## Realist (4 April 2007)

Excellent, the market should be up today!  :


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## Glenhaven (4 April 2007)

Us minority voters in the poll got it right. I was really concerned for the property prices in the morgage belt and the impact. Good decision.


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## The Mint Man (4 April 2007)

Only 37% of us picked it right, alot of doomsayers on here.


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## Gundini (4 April 2007)

Glenhaven said:


> Us minority voters in the poll got it right. I was really concerned for the property prices in the morgage belt and the impact. Good decision.




I would think a modest rise of .135% would have probably been the result if the RBA could make more sensitive adjustments, but good result for those struggling with their mortgages.

Nobody wants to see forclosures.

That said, as wayneL mentioned earlier, it is probably just delaying the pain.

Let's face it, people will be lining up at Harvey Norman, with plastic afoot to hock up a plasma. Bit of a sad world this buy today/ pay tomorrow concept, except for houses of course.


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## Uncle Festivus (4 April 2007)

I voted no, but only makes it a certainty for next month I guess, maybe 50 points


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## The Mint Man (4 April 2007)

Gundini said:


> Let's face it, people will be lining up at Harvey Norman, with plastic afoot to hock up a plasma. Bit of a sad world this buy today/ pay tomorrow concept, except for houses of course.



If people are that silly then so be it. 
I can't stand people complaining about the interest rates rising when the real reason they are in trouble in the first place is because they have no money handling skills, even if you tried to explain what they are doing wrong they don't listen.
Don't get me wrong though, I would love the interest rates to stay put but I'm not counting on it and this is exactly where some fall off. People have to learn to make careful decisions before buying that big plasma or LCD.


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## >Apocalypto< (4 April 2007)

> Let's face it, people will be lining up at Harvey Norman, with plastic afoot to hock up a plasma. Bit of a sad world this buy today/ pay tomorrow concept, except for houses of course.




so true and it is common place now to randomly call any one and convince them they need a credit card.

God I can't stand those pushy pricks trying to convince me why i need a credit card!


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## Kimosabi (4 April 2007)

Trade_It said:


> so true and it is common place now to randomly call any one and convince them they need a credit card.
> 
> God I can't stand those pushy pricks trying to convince me why i need a credit card!




I think the objective is to get everyone into so much debt until they can't service their debt anymore and then...


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## steven1234 (4 April 2007)

I don't own property...  At this stage i would love an interest rate rise, a HUGE one at that to push house values down.


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## YELNATS (4 April 2007)

Gundini said:


> I believe the RBA is independant of political bias




Really, is anyone free of political bias? Do all the RBA board members vote informal at elections? lol


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## Kimosabi (4 April 2007)

YELNATS said:


> Really, is anyone free of political bias? Do all the RBA board members vote informal at elections? lol




Considering most of the board members are also Directors of some of Australia's largest companies, I suspect most of the Members would have leanings towards the Liberal's...


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## Buffettology (4 April 2007)

Im surprised.

Guess we will have to see the next lot of indicators before the meeting next Month.  Surprised if they stay down next month, and if the inflation figures dont fall, we will definately see a rise I beleive.


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## Freeballinginawetsuit (4 April 2007)

By the sounds of it Joe Blow's new ASF software can pick up those with multiple accounts..........maybe it recorded posters choices on the poll.

Would be intersting to see  .

Is that possable Joe?.


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## Mousie (4 April 2007)

Freeballinginawetsuit said:


> By the sounds of it Joe Blow's new ASF software can pick up those with multiple accounts..........maybe it recorded posters choices on the poll.
> 
> Would be intersting to see  .
> 
> Is that possable Joe?.




Oh goodness, please no. HELL no : 

I'll stop voting on forums in a jiffy if that ever happens. And that's not a threat, it's a promise.


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