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Obviously you don't believe a word that Glenn Stevens has recently been spruiking...
http://www.abc.net.au/news/stories/2011/06/15/3244487.htm
As always, time will tell.
Judging by bond yield curves and the state of the economy in general i dont think we will be seeing rate rises anytime soon. In fact the likelihood of them going down is greater.
http://www.abc.net.au/news/stories/2011/06/15/3244487.htmMr Stevens says there is not enough spare capacity in the labour market to cover the expected increase in demand for workers in the mining sector, and related services.
"The degree of slack in the economy overall does not seem large in comparison with the apparent size of the expansion in resources sector income and investment now under way," he added.
Glenn Stevens says that means further rate rises are likely to be needed, to curtail inflation before the point at which it starts getting out of hand.
"It remains, though, a matter for judgement by the board as to whether that point has been reached. At its most recent meeting, the board's view was that it had not been," he said.
"New information will, as always, be important in our monthly assessments of what monetary policy needs to do. As far as prices are concerned, we will get another comprehensive round of data in late July."
That seems a fairly large hint that the next interest rate rise is unlikely to take place before the August meeting.
'Under pressure'
Glenn Stevens says the average Australian is still better off with the boost to national income from the mining boom, even though the resulting increases in interest rates and the local currency are hurting many sectors of the economy.
He says the amount of additional income accruing to production in Australia from the current terms of trade, which are the highest in around 140 years, is 15 per cent or more of annual GDP.
Even though much of this accrues to foreign investors that own large chunks of Australia's resources companies, Mr Stevens says enough of it trickles down to boost average household incomes.
He argues that Australians are fortunate to live in an advanced economy that produces large quantities of minerals and food, with the rise in the Australian dollar mostly offsetting the large increase in commodity prices, such as oil, that households in many other countries are struggling with.
Obviously you don't believe a word that Glenn Stevens has recently been spruiking...
http://www.abc.net.au/news/stories/2011/06/15/3244487.htm
As always, time will tell.
No I do not believe what Glenn has been spruiking. If he is so concerned about the resource sector causing inflation, then why haven't rates been increasing given that inflation is above the RBA's preferred 2-3% band? So house prices are expensive and inflation is above the target band - yet not interest rate rise? Couple that with the current Australian Government Bond yield curves and it looks like the market believes we're in for flat or declining rates.
That being said however, the rapid appreciation of the AUD may be what is holding off the RBA from making a move - had we not appreciated then we'd be stuck at current rates. Given that most mining projects are priced in USD, with an appreciating AUD that means 'cheaper' labour and project capital cost which could spur an unprecedented number of projects being kicked off. I think this is what Glenn fears. On the flipside our resource exports are now much more expensive so the RBA would be hesitant to subdue the resource sector - might see international competition start to take large chunks out of our resource sector.
No I do not believe what Glenn has been spruiking. If he is so concerned about the resource sector causing inflation, then why haven't rates been increasing given that inflation is above the RBA's preferred 2-3% band? So house prices are expensive and inflation is above the target band - yet not interest rate rise? Couple that with the current Australian Government Bond yield curves and it looks like the market believes we're in for flat or declining rates.
Stevens and the other ivory tower bankers at the RBA manage monetary policy for the aggregate economy as a whole, individual sectors are of less concern. Their pre-emptive mentality always sees them overshoot with their rate rises (just as they did prior to the GFC) so as to project the image that they are conservative and ahead of the curve. In fact they are always behind the game and will only drop rates when the economy as a whole lurches into a deep recession. But then it may already be to late since, as we know, 0% interest rates in the U.S. has not revived its moribund economy.
Their pre-emptive mentality always sees them overshoot with their rate rises (just as they did prior to the GFC).
Whats wrong with having different IR for different products say Owner Occupied House x % cars x% up to a certain value then higher.
Income generation equipment such as farm machinery a lower rate.
I realise it would be all over the place but should be able to cabinet most in to groups such as luxury etc.
You're right, they should have kept rates stupidly low like other developed economies except NZ. Surely that wouldn't lead to reckless borrowing, a real estate price (and supply) bubble and a financial crisis. Ahh wait! How are those other economies doing?
As for not dropping rates until the economy is in recession, that is just common sense to meIf you drop rates before an economic downturn, you get into the position that the US is in. You cant break the zero lower bound of rates, you therefore can do very little from that perspective once your economy is suffering. If rates are high to start, you have a lot of free space to implement monetary policy before falling into a liquidity trap.
Higher rates aren't such a price to pay when they avert hazardous lending/borrowing practices, they are just harder to appreciate as you can't see how things might have been. I know that higher rates were not the only thing holding the Australian economy above water through the GFC, but they were a part of it. I think Stevens does a great job.
My, population growth + lack of supply to match growing demand = prices can only really go up.
Australian property doesn't have the supply bubble that other areas have/had, there is a supply shortage.
No I do not believe what Glenn has been spruiking. If he is so concerned about the resource sector causing inflation, then why haven't rates been increasing given that inflation is above the RBA's preferred 2-3% band? So house prices are expensive and inflation is above the target band - yet not interest rate rise? Couple that with the current Australian Government Bond yield curves and it looks like the market believes we're in for flat or declining rates.
That being said however, the rapid appreciation of the AUD may be what is holding off the RBA from making a move - had we not appreciated then we'd be stuck at current rates. Given that most mining projects are priced in USD, with an appreciating AUD that means 'cheaper' labour and project capital cost which could spur an unprecedented number of projects being kicked off. I think this is what Glenn fears. On the flipside our resource exports are now much more expensive so the RBA would be hesitant to subdue the resource sector - might see international competition start to take large chunks out of our resource sector.
Still, thats just my view, i hope so other people can weigh in. What is your thinking AussieJeff? As you say time will tell.
P.S. Banks have 10 year fixed loans at about 8.5% - i would assume their mortgage analysts wouldn't set such a rate unless they were either confident of rates staying flat/down or they just desperately need loans. What are other's thoughts?
Spoken like a true disciple of RBA propaganda. Reserve banks are useless creations by bankers for bankers, your interests are not their interest. To believe anything else is naive in the extreme. Investigate the history of reserve banks, why they were created, by whom and their track record before you sing the praises of the RBA and their policies to me or anyone else.
Reckless borrowing in the U.S. was not just due to low interest rates. Key elements in the mix were corruption, greed and lack of regulation with respect to predatory lending practices in the U.S. housing market.
High interest rates are not some panacea that cures price inflation with little negative impact that includes inflating currency exchange rates. Inflation can be and is imported via reckless external monetary policy and money printing by foreign central banks. This causes higher prices for business inputs and hence higher production costs and cost of goods. The RBAs big club has no control over this. Rather the interest rate club comes out (smashed over the heads of businesses and consumers) to dampen consumption and reduce demand while also hurting profitability and business competitiveness. Our little mining boom won't last forever and when the tide goes out we will clearly see that the rest of the economy is naked and badly exposed.
Keep telling yourself that the Australian housing market is not a giant bubble, Australia is different, affordability is not an issue and prices will always go up (just as property spruikers and true believers did in the U.S., UK, Ireland etc.) When that bubble pops it will also deflate the ego, bank balances and net worth of millions of Australians just as property price collapses have elsewhere where property was thought to be an invincible asset class that will always rise in value. Perhaps you have not heard yet, the stats are in and property prices are falling and have been for months now.
BTW, your two cents is more than the net worth of many Americans, Irish and Brits who thought the same way about their property markets as you do about the Australian market. Ignore the lessons of history at your financial peril.
wow , hedging property with derivatives , what a can of worms . become a property investor with out buying property ....................
http://www.smartcompany.com.au/property/20110615-why-we-need-another-way-to-invest-in-housing.html
And that's an important point. A mining tax would subdue the mining industry slow the need to raise interest rates, balance the economy better and therefore keep interest rates low. It is this failure of government policy (and oppositions) that may end up causing the trigger of higher unemployment combined with high interest rates that will lead to a propert sector crunch. The mining industry doesn't need too much help and I disagree with dampening the economy so the mining sector can get more employees. They (including Gina) can look after themselves. Let market forces determine what happens.
REFINANCING to renovate is back in vogue as the sluggish property market means people are opting to do up their home rather than turn it over.
New Australian Bureau of Statistics figures show refinancing existing home loans for established dwellings rose to $3.17 billion in April across all the banks, up 22 per cent on the $2.6 billion of refinancing a year earlier.
Non-banks experienced a 52 per cent jump in refinancing to $339 million in April, while building societies had a 53 per cent spike to $89.5 million.
Refinancing now accounts for about one in three home loans sold.
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