Interest rates - where are they heading?

[Soft Dough]

Now, this is just my 2 cents worth, so please don't cut me down. I feel that we are getting taken for a ride sometimes here in Oz.

Well you are wrong, the margins here are comparable or less to other developed nations, it is just that people do not investigate this as they want to believe they are being ripped off by the big greedy bank which is allowing them to borrow the money to become rich.

The true losers of this political pressure on interest rates is business.

The stupid Krudd government pressures banks to keep interest rates for residential property artificially low at the expense of business rates.

Any competent, forward thinking politician would actually do the opposite and pressure banks to reduce rates of business loans and charge unproductive loans ( eg housing ) more, as this would :

1. Decrease speculative waste on residential realestate, and hence address the waste of money in this area, which actually causes outflow of money from the country, and hence contributes to deficits.

2. Improve business investment, which would strengthen employment, improve trade balance and provide protection against predatory offshore interests who are using this timeframe to purchase strategic businesses in this country at low prices - something we will regret in the future.

But then again, How would Wayne Swann and other politicians know what to do with money and how to generate more, as they are too interested in winning votes.

 

[DB008]

Hmm...maybe your right.
But, if a bank can offer a loan like this, why can't an aussie bank borrow money from these guys, lock in the fx rate and then onsell it as a mortgage here in Oz...oh wait, they DO.
And, they can onsell it as a fixed or variable loan, eg 6.5%, 3 year fixed and still make 4% with limited risk.


http://www.shinseibank.com/english/housing/index.html

http://www.shinseibank.com/english/housing/loan_kinri.pdf

 

[Soft Dough]

Hmm...maybe your right.
But, if a bank can offer a loan like this, why can't an aussie bank borrow money from these guys, lock in the fx rate and then onsell it as a mortgage here in Oz...oh wait, they DO.
And, they can onsell it as a fixed or variable loan, eg 6.5%, 3 year fixed and still make 4% with limited risk.


http://www.shinseibank.com/english/housing/index.html

http://www.shinseibank.com/english/housing/loan_kinri.pdf

Which bank in australia is a Japanese citizen?


Australian banks do not borrow that cheap.

 

[persistentone]

Can someone recommend high quality income securities that are adjusted quarterly against the Australian central bank rates, or some other index that is proportional to the central bank rate?

 

[boofhead]

It depends on the returns you're after. A number of hybrid securities use BBSW + margin. BBSW happens to be a little higher than RBA official rate at the moment.

 

[OzWaveGuy]

Since the RBA will be meeting soon, I thought I'd help the process along.

In a previous post, EWI's research shows that the RBA Cash Rate Target simply follows the 90 Day Bill rate.

So looking at the data below (data source: www.rba.gov.au), where do you think the rate will head next?

My opinion is: Cash rate target will move to 3.5%

With a possibility that to could move as high as 3.75%

 

[Timmy]

Since the RBA will be meeting soon, I thought I'd help the process along.

In a previous post, EWI's research shows that the RBA Cash Rate Target simply follows the 90 Day Bill rate.

So looking at the data below (data source: www.rba.gov.au), where do you think the rate will head next?

My opinion is: Cash rate target will move to 3.5%

With a possibility that to could move as high as 3.75%

OWG, if the RBA 'simply' follows the 90 Day Bill Rate, as you say, and your chart is correct, why do you think it goes to 3.5 with only a 'possibility' of 3.75? Based on what you have said then 3.75 is definite, right?

 

[drsmith]

It's more of a case of the 90-day bill rate trying to anticipate the future cash rate.

Look at the graph on the top RHS on the first page.

http://www.rba.gov.au/ChartPack/interest_rates_australia.pdf

In anticipation of rising cash rates to cool the Australian economy 90-bill rates overshot the RBA's cash target in 2008 prior to the full onset of the GFC and the subsequent rapid RBA easings in late 2008.

Note also that the 90-day bill rate did not lead the way down anywhere near as much during the latter rapid easings.

 

[OzWaveGuy]

OWG, if the RBA 'simply' follows the 90 Day Bill Rate, as you say, and your chart is correct

The data in the chart says it.

why do you think it goes to 3.5 with only a 'possibility' of 3.75? Based on what you have said then 3.75 is definite, right?

Not sure I follow your logic Tim or your assumption of a target of 3.75%. The RBA rate lags the market.

As a side note: A 0.5% increase to 3.75% is a large step in a tough economy and could be politically damaging - If I were the RBA, I would simply raise rates in .25% increments, following the 90 day rate. Unless of course the 90 day rate jumps ahead too far - then 0.5% change would be warranted

 

[Timmy]

Not sure I follow your logic Tim or your assumption of a target of 3.75%. The RBA rate lags the market.

I have made no assumptions.
You said the RBA 'simply' follows the futures market, but there is much more to the setting of official interest rates than that, your model is oversimplified and misleading. As you say in your subsequent post, there are other considerations too.

Thanks DrSmith, makes sense.

 

[MRC & Co]

In anticipation of rising cash rates to cool the Australian economy 90-bill rates overshot the RBA's cash target

Overshot, doesn't sound like the markets I know

No meet Jan remember, could affect Nov-Dec decisions.

 

[drsmith]

No meet Jan remember, could affect Nov-Dec decisions.

The 1% cut by the RBA in October 2008 is the most interesting in that the 90-day bill market did not anticipate it at all.

 

[MRC & Co]

The 1% cut by the RBA in October 2008 is the most interesting in that the 90-day bill market did not anticipate it at all.

Yes, I remember it clearly.

Probably the easiest money in history ever made on that day. Milllions being handed out in bags!

 

[jonojpsg]

Yes, I remember it clearly.

Probably the easiest money in history ever made on that day. Milllions being handed out in bags!

Don't spose you've got one of those bags spare have you MRC

 

[OzWaveGuy]

It's almost that time again. I wonder what verbs the RBA and the mainstream media will be using on the interest rate meeting?

Or one can simply look at the 90day bill rate and see that it's changed from 3.88 at Oct end to 3.98 as of yesterday - That's a whole 0.1 difference month to month.

I doubt the RBA will move the cash rate target to 3.75% from 3.5% based on such a small move of the 90day rate. My bet is to hold the rate at 3.5%, or a very outside chance to 3.75% if the RBA wants to narrow lag of the cash rate target.

 

[boofhead]

Recently the 90 day rate has hit above 4.00% a few times. Thankfully it was 4.005% when AQNHA new coupon rate was calculated. The 30 day rate has been steadily climbing too.

 

[Bill M]

I read today somewhere that the RBA has never raised rates 3 Months in a row. They have lowered 3 Months in a row but never raised. So either history repeats itself or we see something happen that has never happened before. I'll go the history, no change for December.

 

[IFocus]

RBA up the rate...........they keep saying that the rate was set at emergency lows and inferring current conditions do not meet an emergency

 

[BigWillieStyles]

The RBA will continue to raise rates as long as house prices increase or atleast slow greatly.

 

[persistentone]

Yes, I remember it clearly.

Probably the easiest money in history ever made on that day. Milllions being handed out in bags!

What specific investments did you make in response to that rate decrease?