RAB interest this year

Discussion in 'Loans & Mortgage Brokers' started by Loverenting, 29th Apr, 2018.

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  1. Loverenting

    Loverenting Well-Known Member

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    It is widely predicted that this Tuesday RBA will keep the interest rate unchanged at 1.5%. There hasn't been steady growth in wages or sustained dynamics in inflation to warant an increase, and as the many predictions go, the rate would remain static until early 2019 at least.

    While only few have argued more cuts are needed this view probably has merit and it's indeed something that RBA might need to consider for them to see realistic growth sooner.

    If we assume economic growth as physical movement determined by force, inertia and momentum then RBA interest rate is viewed as the key adjuster to the applied force being credit cost & supply. Current sluggishness in the economy can be attributed to insufficient force compared to inertia hence no momentum formed. So with the last adjustment occuring in August 2016 and thus far the longest period in history of rate held static, the RBA incation does seem not good enough. And instead of having to wait for another year to see whether there is a clearer effect, why not act now and force an additional momentum to the economy. Another cut of 0.25 or even 0.5% will more likely result in established growth outcomes, and a steady upward movement would certainly sanction rate hikes after a couple of quarters. We may then end up having the same 1.5% by end 2018 / early 2019 but growth prospects would be brighter against the currently predicted scenario of "do nothing and wait" due to difference in momentum.

    Given the property market is already in the negative growth territory, there is no constraint for the central bank to take this "bold" move of further slicing the interest rate for longer term gains.

    (This is generalised analysis and does not take into account international factors)
     
    Last edited: 29th Apr, 2018
  2. marmot

    marmot Well-Known Member

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    It serves no purpose , the whole idea of countries dropping interest rates to emergency levels was to try and stimulate their economies after they were savaged by the GFC .
    Countries like Australia cruised through the GFC largely unaffected, but when we got access to the really cheap money , we done exactly the same as what the U.S and many Euro countries done prior to the GFC , we loaded up with debt as interest rates went down to emergency levels.
    They have had 10 years to try and sort it out , and the U.S is now starting to raise theirs.
    Historically Australia has always had interest rates slightly higher to attract foreign money into Australia.
    Having interest rates lower than them would see foreign capital move out of Australia in search of a higher return somewhere else.
    If we then want that money , we have to go overseas to borrow it ,at a higher rate .
    In the end ,the cost of borrowing that money will become more expensive.
     
  3. hobartchic

    hobartchic Well-Known Member

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    With the Australian dollar trending down, I would expect bank lending rates to trend up regardless of the RBA decision.
     
  4. Loverenting

    Loverenting Well-Known Member

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    Agree that higher rates are more attractive to foreign creditors, however there is a supply demand rule. The availability of money doesn't make much sense if demand is low due to little growth of economic activities (which has been the case here in Australia). Thus the job of the central bank is to set the cash rate at a level that they deem would result in the right balance of its supply and demand at a time.