Julia
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The 5% has been re-applied to my account.
Interest Rates
- Thread starter Largesse
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An interesting industry talk I attended this morning had a great speaker on the AUD and interest rates, and his expectations for the next few years. GDP without the past few years mining related investment which has all but dried up completely has been between 0% and 1.5% growth. We apparently are headed for having a large growth pothole to fill, and thanks to a relentlessly high AUD other industries and sectors are simply not in the position to pick up and fill it.
Another 125 basis points off to 2% in the next 12 months, and mortgages needing to be around 5% to spark some shift in deleveraging trends were his comments, however he also stated that Australia's deleveraging is an attitude that is likely here to stay for a good while.
Regardless, our interest rates can only go down from here surely. I personally don't think we'll see any issues until we need to chop it below 2% - there will definitely be some hesitation there.
Another 125 basis points off to 2% in the next 12 months, and mortgages needing to be around 5% to spark some shift in deleveraging trends were his comments, however he also stated that Australia's deleveraging is an attitude that is likely here to stay for a good while.
Regardless, our interest rates can only go down from here surely. I personally don't think we'll see any issues until we need to chop it below 2% - there will definitely be some hesitation there.
white_goodman
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they cant AUS ZIRP is around 2%
EDIT: well they can but the aud would crash and our ability to fund ourselves would be heavily diminished
Crash? Or fall? What would you define as a crash?
We can't preserve our AAA rating without returning to surplus or making a redhot go at it in the next few years, regardless of whether the government is spending to keep out of recession. So we can't spend our way out of it or we won't reach a surplus. Monetary policy won't do it, so fiscal policy will have to.
With deleveraging well embedded it's going to take big moves to kick up spending - the last 125 basis points haven't had the effect desired, just shrunk a bunch of mortgages that are propping up our biggest financial organisations.
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Thinking of people that I know, I can't see any of them responding to an interest rate cut by increasing their spending. They either don't have debts anyway or would maintain the same rate of payments in the event that rates went down. People are cautious now, and nobody is going to throw money around for the sake of it.
A key driver is that with the notable exception of travel, primarily overseas, there really isn't much worth spending on that people don't already have. Today's 25 year olds are far less interested in owning houses and even cars than was the case until quite recently and, due to the collapse in the price of consumer goods, they already have everything else they could want. That leaves travel, particularly overseas, as the only rational outlet for any increase in spending. Either that or buy a new iPhone which adds little to the domestic economy.
Looking at my own situation (and I'm somewhat older than 25) it's much the same. So far as any discretionary spending is concerned, I've recently been on holidays to the USA but the only thing I have firmly planned looking forward is a trip to Adelaide next year and putting some more solar panels on the roof. None of that is adding anything significant to the economy in my local area (Tasmania) apart from minor things like parking fees at the airport and some courier delivering the solar panels etc. Most of it is going straight out of the state and indeed much of it goes straight out of the country.
It's not interest rates that are holding back consumer spending. The number one issue I hear mentioned by people (just ordinary people, not economists etc) is the price of essentials, particularly the recent huge rises in electricity prices, and to a lesser extent the overall price of food etc. The next issue is the big job losses that keep happening or being threatened - I think Ford is the latest one there but it's certainly not the only tale of woe. Government spending cuts (primarily state governments) come in next as getting people worried, along with the assumed prospect of tax hikes and/or further privatisation and price hikes to essential services.
In contrast, most seem relatively uninterested in interest rates these days simply because they are no longer top of the list of economic concerns for many. Few expect them to go up to any significant extent whereas loss of employment or substantial increases in non-interest costs are a very real concern.
Bill M
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As a self funded retiree I would like to see higher interest rates. The higher they are the more income I receive, the lower they are the less I tend to spend. Lower interest rates has the direct opposite effect on my household.
Julia
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Smurf, great summary. Perhaps a pity most economists don't have such a logical and commonsense approach.
BillM: yep, obviously I agree with you. I feel reasonably protected against further interest rate falls with only a small amount of cash at call, and the rest earning better rates at term deposits when these were available, but it's irritating that whenever rates are discussed by the government, all the emphasis is placed on those who have borrowed money and virtually no mention of the adverse effect on anyone who has been a saver.
BillM: yep, obviously I agree with you. I feel reasonably protected against further interest rate falls with only a small amount of cash at call, and the rest earning better rates at term deposits when these were available, but it's irritating that whenever rates are discussed by the government, all the emphasis is placed on those who have borrowed money and virtually no mention of the adverse effect on anyone who has been a saver.
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Don't worry, the government doesn't want the interest rate to fall to the point that more and more self funded retirees qualify for the pension.
Bill M
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Alert, again!
UBank has now dropped their rates (including bonus) down to 4.91%. The RBA keeps rates steady but UBank continues to drop theirs. I think they will see massive withdrawals.
https://www.ubank.com.au/index.htm
UBank has now dropped their rates (including bonus) down to 4.91%. The RBA keeps rates steady but UBank continues to drop theirs. I think they will see massive withdrawals.
https://www.ubank.com.au/index.htm
Julia
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Agree. But where will those depositors go? The whole interest rate environment is similar at present.
From the RBA minutes of the last meeting, it sounds like another cut in December too.
Might force more back into the market.
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I don't consider savers/retirees being forced to gamb....er....specula....errr...invest in the market a healthy state of affairs in Oz.
Not so long ago (ok, it was the late '50's) when I was a lad, saving for a rainy day was hammered in to all of us kiddies. Wot happened?
Sign of these bleedin' times eh?
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Isn't the intention of lowering interest rates to get people/companies/institutions investing more, rather than hoarding cash? Whether or not it's in the financial markets is a different story (although I'm not personally aware of any other viable alternatives).
Bill M
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Currently I am putting my cash in the Rabo HISA which is still paying 5.46% with the bonus. Term deposits are really down now, nothing over 5%.
I am currently dribbling small amounts into the market on any corrections. Also eyeing off any hybrids, floating rate notes or convertible shares that may get miss-priced. It isn't really easy right now I agree.
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Agreed. And to make matters worse, the Basel III capital requirements will only hurt term deposits I'd imagine.
Julia
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And to just SPEND in order to stimulate the economy.
This is where many will come unstuck as we've already seen too often, viz Storm Financial, Banksia, City Pacific et al. Many people will feel they lack the understanding or expertise to invest in the market directly so will take the recommendations of financial advisers (whom they later discover have the interests of the client as very secondary to their own), or be sucked in by advertising for eg City Pacific and ultimately lose much of what they invest.
And unlikely that these term deposit rates will improve for some time. The Rabo HISA is OK now, but the likelihood would be that I'd move some money over there with all the stuffing about that that involves, and whacko, down would go their rate too.
I still have over two years to run on my 8% TD but those at 7% will conclude next March. That will prompt me into doing something. When the amount at call is under $100K, I don't worry too much about what it's earning, but when it's a larger amount I guess I'm going to have to pay some attention to the market again.
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Isn't it very misleading to continuously reduce the interest rate whilst keeping the 'Money Magazine Winner 2012' sticker? From memory, they had that sticker since interest rate was 6.51% (including bonus) and it deserved such an award. But if they thereafter reduce it to, say, 1%, someone without background knowledge may see it and think it's the best deal out there.
I know that's the theory, but can't that reasoning also backfire? Won't savers think "damn, gonna earn less on my money now, so I'll save MORE"
The jobless rate will go up for a start. Then all sorts of things start happening that forces enough people to spend.
Julia
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Yes, good point.
Quite so, Tyler. As has been demonstrated with interest rate cuts so far.
Many people have been scarred by the GFC and have become much more conservative as a result.
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I'm thinking of writing to the authority that handles misleading advertisements.
white_goodman
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thats exactly what has happened, banks have been replacing wholesale funding with domestic deposits, mortgage debt reduction increasing (counted as savings in the data)
