Interest Rates

[greggles]

Interest rates on hold again.

As Smurf suggested, the RBA probably didn't want to makes any changes so close to a Federal election.

 

[Knobby22]

I don't think a rate cut would achieve much. Already below US interest rates and pensioners would do it tougher. Better to wait.

 

[PZ99]

JP Morgan taking the mickey on rates going to 0.5% in a year IMV

But.. for what it's worth > https://www.afr.com/news/economy/mo...-0-5pc-in-12-months-jp-morgan-20190529-p51s7v (may need to open this with a private/incognito window)

"The official cash rate will touch 0.5 per cent midway through next year because the Reserve Bank will have to capitulate to a much more severe global economic downturn, according to JP Morgan economists.

With financial markets already pricing in a 0.25 percentage point rate cut on Tuesday and another two 0.25 percentage point rate cuts by the start of next year, JP Morgan suggests the RBA will have to go even harder."

I'm betting a fifty they stay on hold next Tuesday

 

[jbocker]

JP Morgan taking the mickey on rates going to 0.5% in a year IMV

But.. for what it's worth > https://www.afr.com/news/economy/mo...-0-5pc-in-12-months-jp-morgan-20190529-p51s7v (may need to open this with a private/incognito window)

"The official cash rate will touch 0.5 per cent midway through next year because the Reserve Bank will have to capitulate to a much more severe global economic downturn, according to JP Morgan economists.

With financial markets already pricing in a 0.25 percentage point rate cut on Tuesday and another two 0.25 percentage point rate cuts by the start of next year, JP Morgan suggests the RBA will have to go even harder."

I'm betting a fifty they stay on hold next Tuesday

What will it matter? The banks will slurp it all up anyway.

 

[greggles]

RBA cuts interest rates to an historic low of 1% in an effort to boost economic growth.

This is the first back-to-back interest rate cut since 2012.

https://www.abc.net.au/news/2019-07-02/rba-cuts-rates-to-a-new-low-of-1pc/11270464

 

[PZ99]

The economy must be really down the toilet for the fed to not even wait for parliament to debate the tax cuts prior to lowering the rates.

All the banks are down

 

[SirRumpole]

I imagine the government will stick stubbornly to its surplus goals instead of giving the economy an injection with infrastructure spending.

$1000 tax cut a year tax cut might help but in the view of rising gas and power prices it will get eaten up pretty quickly, and they haven't yet said where the cuts will be.

 

[Smurf1976]

I think an issue here is that we're living in a world where a lot of people do have at least some very basic economics knowledge and know that whilst an interest rate cut might benefit them personally, the reasons for it are because things aren't going well.

It might help the housing and share markets given that cash deposits are rapidly approaching the point of paying zero interest or so close to it as to make the detail irrelevant, thus "forcing" those with funds into other assets, but I can't see it getting people back into the shops since too many are aware of the underlying reasons.

 

[sptrawler]

I imagine the government will stick stubbornly to its surplus goals instead of giving the economy an injection with infrastructure spending.

$1000 tax cut a year tax cut might help but in the view of rising gas and power prices it will get eaten up pretty quickly, and they haven't yet said where the cuts will be.

You never know Rumpy, schools might get another canteen.
Like you said the tax cuts have to be paid by cuts somewhere, also infrastructure capital and interest has to be paid from somewhere too, it is all a bit of a cleft stick situation ATM.

 

[sptrawler]

It might help the housing and share markets given that cash deposits are rapidly approaching the point of paying zero interest or so close to it as to make the detail irrelevant, thus "forcing" those with funds into other assets, but I can't see it getting people back into the shops since too many are aware of the underlying reasons.

It is all becoming a really big problem IMO, as you say interest rates are at a point where savers may as well pull the money out, this then leaves the banks exposed as they have to source funding O/S.
Then the banks can't make money, it can all turn very nasty from here IMO, there isn't much wriggle room left. Hopefully a bit of confidence comes back, the papers start talking things up and planet Australia returns to normal.
That would be nice

 

[Smurf1976]

It is all becoming a really big problem IMO, as you say interest rates are at a point where savers may as well pull the money out, this then leaves the banks exposed as they have to source funding O/S.

There's also the point that the RBA is just about out of bullets, the dam is just about dry or whatever other analogy you like to use.

If the cut to 1% doesn't achieve much then economically I think that'll be evidence that the proverbial can can't be kicked any further down the road. If business or consumers can't find a productive use for debt and/or banks aren't willing to lend at 1% well then that itself speaks volumes as to the broader circumstances.

One thing of note is that the AUD is still around 70c so no movement of any significance there.

 

[satanoperca]

interest rates are at a point where savers may as well pull the money out, this then leaves the banks exposed as they have to source funding O/S.

Had lunch with my retired parents and some of their friends yesterday, all of them are self funded retires at the moment, the main discussion was about how they could reduce/hid their assets so they could get a part pensions to cover medical expenses. How they we doing that was each week reducing their cash holdings in the banks.
It even surprised me when my conservative parents announced they had just purchased a holiday cabin to be build on the Murray river and the scheme they are using to pay for it with the builder, cash is still king.
When asked why, they replied "better to use the cash than leave it in the bank and get nothing for it".
The RBA where foulish and the govnuts more so for not addressing some of the fundamental issues facing the economy in the last 6 years, yes you dumb arse Libs, you have had six years to achieve something.

 

[sptrawler]

The RBA where foulish and the govnuts more so for not addressing some of the fundamental issues facing the economy in the last 6 years, yes you dumb arse Libs, you have had six years to achieve something.

Well the first thing they have achieved is stopping Labor getting in, I bet your parents and the others were pleased with that, at least it has slowed the housing slide.

 

[satanoperca]

Actually no they weren't, as long term lib supports they wanted a change and while they didn't like the idea of loosing the franking credits, they strongly supported the removal of NG on existing properties.

As SP you seem to dislike labor so much, can you point out why in 6 years, we have the highest private and public debt per ca pita this country has ever seen, a hollowed out economy, greatly reduced standard of living, some of the highest levels of suicide and mental health issues in any developed country and the Libs have achieved what exactly.

Sorry, I got it wrong, it is better to do nothing or the same as nothing and expect a change, than to embrace change without knowing what the outcome will be.

 

[sptrawler]

Actually no they weren't, as long term lib supports they wanted a change and while they didn't like the idea of loosing the franking credits, they strongly supported the removal of NG on existing properties.

As SP you seem to dislike labor so much, can you point out why in 6 years, we have the highest private and public debt per ca pita this country has ever seen, a hollowed out economy, greatly reduced standard of living, some of the highest levels of suicide and mental health issues in any developed country and the Libs have achieved what exactly.

Sorry, I got it wrong, it is better to do nothing or the same as nothing and expect a change, than to embrace change without knowing what the outcome will be.

Have you been living in a parallel universe, most of the last 6 years has been about struggling to get anything through the Senate, running a minority Government being led by an inept P.M.
The whole Country has been more concerned about left wing social agenda's than economic realities, and we are only just now getting the debate on to what it should be about, mainly due to the flogging the left wing got at the last Federal referendum.

 

[satanoperca]

Excuses, excuses, excuses.
Which PM are you talking about, it seems like a revolving door?

 

[lusk]

The economy must be really down the toilet for the fed to not even wait for parliament to debate the tax cuts prior to lowering the rates.

All the banks are down

A quick browse of the ABS site will give you a good idea what the RBA is worried about.

 

[Smurf1976]

JP Morgan taking the mickey on rates going to 0.5% in a year

Well we're down to 0.75% and they seem pretty clear that there's more to come so here we are basically. One more step and we get the 0.5% and no guarantees that's the bottom.

Looking at all of this, I'm thinking that the markets are telling us that world economy is actually somewhat weaker than seems to be widely accepted.

RBA cuts rates from 1.5% to 0.75%, so halving them, and the AUD drops only slightly.

A couple of weeks after the blowing up of oil infrastructure in Saudi Arabia and the oil price is now lower than it was before that incident.

And so on. Doesn't make any sense unless the real message from the currency and oil markets is that the economy's actually pretty weak. Eg no point worrying about falling rates in Australia if the US is going to be forced into doing the same anyway. No point worrying about oil supply if demand's going to slump. And so on.

I do have a definite "uneasy" feeling about all this. Economics and politics globally looks rather stretched to put it mildly and yet the markets remain calm. At some point that's going to change I expect with the question being "what breaks?"

 

[Knobby22]

The thing is , Smurf, the lower the rates the better the yield is for owning shares. So this will feed the bull market.

I don't agree with any further rate cuts. I think the theory behind it is flawed as can be seen in Europe. It destroys bank profitability and reduces savings.

 

[qldfrog]

When money is free..as this is a 0 interest rate mean, it point to it being worthless, so as a very obvious consequence, if you want to preserve wealth, you should move it into real assets being shares, RE, interest giving bonds , PM or stockpile stuff oil, copper whatever if you have space to stockpile it