Australian (ASX) Stock Market Forum

Interest Rates

Reserve cuts rates to lowest in five decades

Posted 1 minute ago

Map: Australia
The Reserve Bank has cut official interest rates to their lowest level in more than five decades.

The bank's board decided to lower the RBA's official cash rate target by 25 basis points to 2.75 per cent.

That is the lowest level since the bank started targeting inflation in the early 1990s, but also lower than the official cash rates (or equivalents) prevailing for the past 53-and-a-half years, according to data compiled by CommSec.

If passed on in full by retail banks, the cut will take the average standard variable mortgage rate down to around 6.2 per cent, which is still higher than the 5.75 per cent low seen during the peak of the global financial crisis in 2009.

CommSec's figures show the record low standard variable home loan rate was 5 per cent in May 1964.

A 25-basis-point reduction will take just under $50 a month from the repayments on a $300,000 loan on a 25-year term.

I knew it :xyxthumbs:xyxthumbs:xyxthumbs

http://www.abc.net.au/news/2013-05-07/reserve-cuts-rates-to-lowest-in-five-decades/4674944
 
Why are you giving that the thumbs up? Haven't you got significant funds on deposit?
 
Why are you giving that the thumbs up? Haven't you got significant funds on deposit?

I guess 2 reasons, one I picked something right for a change :D and 2 I'm more interested in the share prices than the TD rate, just locked in for 3 months again last week.
 
The banks have been reducing their fixed rates lately. Which is unusual.
Does the banks knew something that we don't?:mad:
 
The RBA are idiots! All it does is take the savers down to the spendthrifts level so that absolutely no one has any money to spend the economy out of recession. If people can't make a go of it with interest rates where they were they never will because it's not an IR problem - it's a structural global problem. So we join the ZIRP club after all!
 
The RBA are idiots! All it does is take the savers down to the spendthrifts level so that absolutely no one has any money to spend the economy out of recession. If people can't make a go of it with interest rates where they were they never will because it's not an IR problem - it's a structural global problem. So we join the ZIRP club after all!

Agree. Why save, why work, why be efficient, just borrow, borrow and borrow on housing as you have little chance of getting a business loan to do something productive.

One question however is whether a home loan rate cut is what is really needed now. Home prices are already recovering after a slight dip last year. The place where more aggressive bank interest rate cuts is most needed is in the business sector, and in the industrial, retail and other non mining business sectors in particular.

Read more: http://www.theage.com.au/business/t...uts-to-come-20130507-2j5ao.html#ixzz2SarLfHz1

:banghead::banghead::banghead::banghead:
 
The RBA are idiots! All it does is take the savers down to the spendthrifts level so that absolutely no one has any money to spend the economy out of recession. If people can't make a go of it with interest rates where they were they never will because it's not an IR problem - it's a structural global problem. So we join the ZIRP club after all!

That's a little harsh - all they've done is lowered the cash rate as a result of a 'stubbornly high' currency.

Their other option of course is to start the printing presses and go through a US style QE, but the effects are very similar - without the housing boom (which, as they've stated, is something they want in order to replace the mining investment drop-off)

And the idea that savers make up the majority of spending, thus 'spend[ing] the economy out of recession' is not entirely accurate...

BTW, joining the ZIRP club will probably help. Lower AUD, get more bang for buck on mining exports, manufacturing can survive once more, etc.
The ONLY thing stopping them is rampant inflation.
 
That's a little harsh - all they've done is lowered the cash rate as a result of a 'stubbornly high' currency.

Their other option of course is to start the printing presses and go through a US style QE, but the effects are very similar - without the housing boom (which, as they've stated, is something they want in order to replace the mining investment drop-off)

And the idea that savers make up the majority of spending, thus 'spend[ing] the economy out of recession' is not entirely accurate...

BTW, joining the ZIRP club will probably help. Lower AUD, get more bang for buck on mining exports, manufacturing can survive once more, etc.
The ONLY thing stopping them is rampant inflation.

Very high house prices are a drag on the economy so not sure why they would want that, in fact I recall they have said that the housing bubble is in fact a bubble.

From what I can gather, the ratio is about 4 Depositors/Savers to each Borrower, so the effect of the rate cut will reduce the spending power in the economy by reducing the incomes of a large number of people who are retirees or who are on fixed incomes.

Joining the ZIRP club simply means that we can't compete in the currency wars and are destined for a beggar thy neighbor economy like the rest of the world.

2.5% inflation wouldn't be regarded as rampant?
 
I agree Unc. Let's see a little deflation. It all seems to be government or formally government utilities that are causing the inflation in any case. If we start off another housing price surge I can't see it ending well. Talk about distortions in the economy.
 
The RBA are idiots! All it does is take the savers down to the spendthrifts level so that absolutely no one has any money to spend the economy out of recession. If people can't make a go of it with interest rates where they were they never will because it's not an IR problem - it's a structural global problem. So we join the ZIRP club after all!

The RBA are IMHO only now just catching up with fixing the big blunder they made in putting interest rates up on Melbourne Cup Day 2010. They over-tightened worried about forecasts of a sustained mining investment and terms of trade boom than ended up shorter lived than forecast. They had no reason to raise rates on that occasion. It was a step too far that didn't factor in the external threats to the economy that were lurking.

Banks are not the engine rooms of the economy. I don't see why people expect that depositing money into a bank is going to be a good deal for them or for the economy as a whole. If you want low risk then you've got to expect low risk returns. If you want to be rewarded for putting your money to work then buy shares in a business or an investment fund where the money is put to work generating real business activity. The Aussie banks are just home mortgage lenders. If you need a guaranteed income stream there are annuity products out there that you can invest in.

Furthermore, if people are worried about low rates causing bubbles in the property market, then as I have suggested on these fora before, we should look at credit rationing for mortgages - as we did in the old days. For goodness sake let's get rid of first home buyer grants that only inflate house prices.
 
I don't think this will fuel the housing market, I think people have had enough of obviously inflated property prices and will lay back.
However I think the Chinese are coming back into the market.
I agree that this cut is to lower the dollar to assist business.
I do think it will inflate the share market as money in the bank is no longer a proposition for income.
 
That's a little harsh - all they've done is lowered the cash rate as a result of a 'stubbornly high' currency.

So if, obviously, it's the exchange rate that is the most damaging for local industry, would it be possible or feasible to impose a levy on financial transactions repatriations out of the country such that the rate imposed would negate any benefit of speculators taking advantage of interest rate spreads, calculated by say the same weightings as the USDX basket?? So if the RBA rate is 5% and the 'basket rate' is 2% then financial 'exports' are levied at 3%? There would be problems with genuine capital inflows to say banks, but that would not be such a bad thing as it would force them to lend sustainably ie not encouraging housing bubbles?

Something has to be done so the savers, who provide the funds for business, don't get shafted.

Jeremey Grantham -

By keeping interest rates low, you`re transferring money away from retirees who spend every penny and are really hurting. And by the way, there`s far more of them every year now than there ever was when economic theories were being panned out. You take money from them, and who are the beneficiaries -- the guys who run the hedge funds and the banking system in general and speculators and corporations theoretically can use it to build. But they`re building less now than practically in history. There is no major league capital spending boom going on.
 
Joining the ZIRP club simply means that we can't compete in the currency wars and are destined for a beggar thy neighbor economy like the rest of the world.

there is no zero lower bound..

although savers do get hit by cash rate cuts, banks are still clamouring for domestic funding so the relative rates are better for savers relative to mortgage rates.. this can be seen in RBA reports on q4 last year
 
Those of us who joined the flight to safety following the GFC will now have to have a re-think.

Penny drops: savings are a dud

So you’re a self-funded retiree cursing the Reserve Bank for cutting interest rates. Don’t. If the RBA has forced you to realise your term deposits are duds, the mandarins have done you a favour.
Savers dependent on fixed interest have been poorly advised for decades, not just over the past year as interest rates have tumbled. The dividend flow from a boring portfolio of industrial stocks trounces fixed interest and whatever the best daily rate might be from the on-line banks.
And right now, even after the market has rallied to start the year, equity yields slaughter the best term deposit rates you could have grabbed last year. Of course the yields aren’t as tasty as they were in January or as extremely tasty as they were a year or two ago, but they’re still fine in the general scheme of things.

Read more: http://www.smh.com.au/business/mark...s-are-a-dud-20130508-2j6p1.html#ixzz2SfdynU36
 
I don't see why people expect that depositing money into a bank is going to be a good deal for them or for the economy as a whole. If you want low risk then you've got to expect low risk returns.
Not necessarily. I don't regard my term deposits earning 8% as being any more risky than the funds at call at a bit under 5%. Deposit rates at banks have more to do with the banks' requirement for funds at a given time than their relative safety.

The Aussie banks are just home mortgage lenders. If you need a guaranteed income stream there are annuity products out there that you can invest in.
Annuity products require an absolute commitment in most cases. Not everyone is happy to commit for such a long time ahead.

I do think it will inflate the share market as money in the bank is no longer a proposition for income.
Depends on whether you took a chance on fluctuating rates continuing to offer a reasonable return or alternatively locked in a higher rate.

I wouldn't be so sure that the latest rate cut will fuel a stampede into the share market. It only represents a $250 p.a. drop on a $100K deposit.
 
So you’re a self-funded retiree cursing the Reserve Bank for cutting interest rates. Don’t. If the RBA has forced you to realise your term deposits are duds, the mandarins have done you a favour.
Savers dependent on fixed interest have been poorly advised for decades, not just over the past year as interest rates have tumbled. The dividend flow from a boring portfolio of industrial stocks trounces fixed interest and whatever the best daily rate might be from the on-line banks.
And right now, even after the market has rallied to start the year, equity yields slaughter the best term deposit rates you could have grabbed last year. Of course the yields aren’t as tasty as they were in January or as extremely tasty as they were a year or two ago, but they’re still fine in the general scheme of things.

That's all very fine while the shares are appreciating in value. Hardly held water for all those who didn't see the GFC coming and lost up to 50% of their invested capital. I don't think the yield on those shares would have been compensation for that sort of capital loss.
 
That's all very fine while the shares are appreciating in value. Hardly held water for all those who didn't see the GFC coming and lost up to 50% of their invested capital. I don't think the yield on those shares would have been compensation for that sort of capital loss.

Agreed. The blanket statement "savers dependent on fixed interest have been poorly advised for decades" has so many things wrong with it... Just because fixed interest may not deliver much in the way of returns, it at least has the guarantee (if it's a term deposit with a well-capitalized institution) that you can draw down on the principal amount, and that amount is not at risk.

I couldn't think of anything more problematic than a retiree following this advice and dumping all their savings into bank shares (or any other 'high-yield' shares) and risk their livelihood for slightly larger returns.

Most important rule: Preservation of capital.
 
Just wondering what to do with my cash ATM. I see a very long period of low interest rates around the globe and my cash will be chewed away by inflation. It is forcing people to take risks who otherwise wouldn't. I don't want to buy bank or telstra shares because I feel i think they will level off soon, and wont be worth the risk for a 5 or 6% yeild. What to do ?
 
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