Interest rates how low can they go? - NAB forecasts 2 more cuts

Potentially even further I/R cuts to come? Of course it also depends on how much is also passed on to borrowers.

NAB now sees two more RBA rate cuts and 'the possibility of unconventional monetary policy'

Or for the full NAB release including commentary about rents, construction and general economy
NAB change in cash rate call: August 2016 - Business Research and Insights

 

AKA The RBA is going to keep shooting blanks until it runs out of bullets entirely as they bury their heads in the sand and pretend like it's going to change anything and that the interest rates are what's causing the issues...

 

It will go much lower than 2 cuts. I expect at least 4 to 0,5% at the end of next year... And then it'll get interesting - what next?

 

It might. Look at US now. 9 years of low rates and they are doing great. Economy is in full swing.

 

I don't understand how banks pass on, or don't pass on changes in the RBA OCR? Do the banks borrow from the RBA?

 

I'd hate to see what you think a struggling economy is if you think the US is in full swing or even doing well. There's barely a single economic indicator to suggest they're doing well, nevermind in full swing. Employment, productivity, debt levels, economic growth and GDP are all somewhere in the bad to awful range for them and that's with the heavy election manipulation to try and make things look better than they are.

 

To be fair the RBA has been saying for some time that the government needs to do more to promote growth as the RBAs ability to stimulate growth through IRs will diminish. They are aware of the situation but are mandated to do what they can to maintain inflation. What else do you suggest they do. Increase rates?

 

I reckon we will see a 0% cash rate eventually.

 

From Stevens today:
"Target could allow undershooting for period if needed, inflation target has requisite degree of flexibility."

@timetoact , also this from Stevens which ads to your point "Can't assume monetary policy will give growth needed. Difficult choices needed for budgetary adjustment."

We might not see a rate cut soon after all if he's suggesting that they might let the inflation target slip for little bit.

 

Well, they should not have even done the last couple IMO, pretty clear it is not working as intended, fundamentally a business will not take on more debt for stock or production unless there is takers for the products/services AND profit afterwards. Others are manipulating currency.

The other problem is these rotten banks, who entirely navel gaze and care of nothing else, so if the RBA has even further cuts, what these buggers will do is pass on half or less, then, when it is time to go up, pass on full or more.

It is out of control, we need a system change, why mimic what has failed elsewhere unless it is dictated to us, soon or later, we need to break from this roundabout it would seem.

I would be interested in an in depth counter as to why we should follow this further down the track.

As I write this, CBA has another record profit, which is the main thing, it seems.

 

It's not true. I have just bought a house in US. I have competed with 20 other offers. There are hiring offers everywhere. Labor market is booming. GDP - means nothing, I see what is happening on the ground, not statistics. Here GDP is higher that in the States, but when did you see the last "hiring" sign?

 

PS I like the way the last speech even says, it has not been working........oh really ? did they just hand you this memo on the way out the door.

@barnes the US can have what they have produced for themselves, they have a greedy war machine and been printing money, no thanks.......

 

I wish I could have some of what they have produced, like cheap housing, cheap cars, great on-line shopping without ridiculous postage fees, fast e-net and much more those guys have and we don't.
I don't care about their war machine, it doesn't bother me.

 

What I'm interested in is what rates will PCers we be charged? Is there a limit to what the banks can get there money for? If the rates in the rest of the world go up then why would the RBAs rate have anything to do with what we pay.

So if if rates are 0.5% then would we be paying 2 to 3%! Any ideas?

 

Sounds like it's time to buy some gold for later on when it all goes pear-shaped...

 

I would think 2 cuts are likely. Perhaps one more end of year and one early 2017.

AUD is way too high for RBA's liking.

 

Problem is, the dollar isn't really coming down even with the rate cuts. It's stubborn and dug in around the mid 70's. Conventional economic theories tell us that the rate cuts should have been more effective in that regard by now, but these aren't conventional times, and they arent being as effective as they used to be. Until the US fed lifts rates by 0.5% -1%, the AUD isnt going to get down to the mid 60's.

To the broader question though ; even if the RBA cuts the cash rate, the banks will only pass on the cuts in full if there is a real threat of a royal commission. They are profit factories and unless real reform or regulation is imposed on them, they will keep being profit factories. That threat has gone away now the election has been decided. Turning up to parliament once a year to face all bark no bite questions from outraged politicians for a couple of hours wont exactly frighten them...

But let's imagine the cash rate falls another 50bpts and the banks pass it all on...where's that going to position most borrowers. Between 3.3 - 3.7%? Yeah it will improve cash flow. yeah it would allow those who may have to migrate to P&I as their I/O terms expire to do so with a little less pain. Yeah it will probably convince a few more Owner occupiers to take P&I instead of I/O payments. But it wont improve borrowing capacity at the majority of lenders...

And out of nowhere today comes talk (just talk) that APRA may be getting a little nervous that INV lending is nudging above the 10% speed limit already, and may be looking at lowering the speed limit to 5% or 7%... no idea whether thats just paper talk. That would only result in further I/O rate "rises" - or put another way - a lack of rate cuts being passed on.

Throw BASEL IV into the mix, where another round of capital raising will probably be required in 2017 and where securitised funding needs to be migrated to 12 month minimum terms, and Im seeing banks with plenty of excuses ( real or not) to justify NOT passing on rate cuts in future... so Im not convinced we'll see much more than 30 bpts out of a 50bpts cut, if that were to occur.

 

@barnes You can, we have cheap housing here too, if you go to the premium places in the US you pay for it too, same here. A lot has to do with population as well & the war industry sucks money from the people not mention what it sows for those inflicted with the results, and it also sucks money from us as we follow, not caring seems unfathomable, we also help create the refugee problem that we spend so much on.

See, the thing is, those running wall st have sold them all out, just as we have sold out for short term gains, so far we are not printing money, if you think these short term things are good, well.......I guess we have a wide chasm on what is thought of as good

 

@euro73 We have quite a few things to worry about and hopefully, someone, somewhere, will help to change, it has to start with our politicians, this kicking the can further down the road constantly does not work elsewhere & will not work here

 

But....... it does work.... kinda...... consider a politicians definition of "what works" vs yours or my definition of "what works " for a pollie, kicking the can down the road and leaving the really tough decisions for the next guy , or even for the next next next guy, does work. Its working right now in the UK, Germany, France, US, even Italy and Portugal and Spain and Ireland, and even Greece. is it working well? hmmmmm...see thats a different question to "is it working?" Fopr pollies, all that matters is that it works "well enough" to keeps things rolling along just enough so that life soldiers on and the world doesnt implode in madness. What it doesnt do is improve things...

lets be real. 9 years after the GFC - a financial calamity like none before, and we have no serious reform in any capitalist nation regarding the complete failure of "trickle down" We have outrageous executive salaries, still. Profit is still THE God amongst Gods, still. Austerity has been abandoned because it cant work alone. Our own treasurer still cant reconcile that we have a revenue and an expenditure issue to address... and on it goes. These people we elect - whether Australian, European or American or anything else, are incapable of looking 20 years out. They talk like they can see ahead.. "our children" this, "our grandchildren" that ... but they govern like the next days news cycle is all they can actually see.

And you know what? we accept it. we allow it. we reward it. And our two major parties, like all global major parties, are handcuffed. Beholden. Factions rule. Partisanship rules. So genuinely innovative thinking gets crippled.

If you want serious change, in 3 years time hand the keys to the lodge and the house to some left field independent and his or her party. Hand the senate to them as well. Remove major party factions and backroom puppeteers from the decision making process completely for a few years, and watch the shackles come off and stand back in wonder at the revolutionary changes they will be able to make.... but with that unshackling will have to come the acceptance that some really seriously insane, nutty stuff will likely happen too.... so yeah, thats not going to happen, meaning we are in for more of the same for decades to come.

Now I'm a capitalist, and I like being wealthy, but I know I could pay a little more tax and still live very well , or get a few less breaks on super and still live very well. I also know we could borrow money, built good stuff and grow our population and tax base and stop Australia being Sydney and Melbourne and the rest, and the extra debt would be useful, rather than useless.

Forget any other way of raising money like PPP's, superannuation funds, corporate bonds or bank loans. The cheapest money on offer for infrastructure projects is if the government goes and borrows the money itself. Simple as that. I mean, 10 year Australian Govt Bond Yields are at 1.87% 15 years are at 2.22% Seriously. Australia hasnt done 30 year bonds before but the US 30 year bond is at 2.25% so Australia should be able to raise debt at mid 2's... the US 10 year bond is at 1.58% by way of comparison to 1.87% for Australian 10 year bonds.

These guys should be out raising 15 , 20, 30 year debt at mid 2% rates and getting stuff built.