RBA/APRA going forward in next two years (2022-2024)

Discussion in 'Property Market Economics' started by TheSackedWiggle, 23rd May, 2022.

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  1. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Let's discuss what RBA is stating, it will do going forward,
    its impact on borrowing capacity, Mortgage rate, currency and ultimately property prices.

    RBA stated policy objective going forward
    1. They would like to see cash rate in normal band of 2.5-3%
    2. They like to transition from QE to QT


    RBA Timelines so far,
    QE start => early 2020
    TFF start => early 2020
    TFF End => Jun 2021 ($188bn used)
    QE End (bond purchases) => Feb 2022
    TFF expiry => 2023/24
    QE bonds Expiry => Varied Expiry's

    QE and TFF in last two years, played a key in keeping MRs artificially low
    Going forward, with RBA looking to transition from loosening to tightening aka QE=>QT
    next 2/3 years where bulk of expiry is due, is going to be quite interesting MR wise.

    Handling global inflationary pressure via raising Cash rate is in itself challenging,
    Throw in QT and it gets more interesting.

    Note: Going forward, Banks will have to raise cash from market not just to return TFF money, but also to fund their mortgage books in absence of RBA QE/TFF (aka the cheap money provider of last two years)



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    Last edited: 23rd May, 2022
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  2. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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  3. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Moderators / @Simon Hampel, not sure why images appear to be missing from some of my recent posts.
    I see those images when I edit, so they seem to have migrated to server.
     
  4. Blueskies

    Blueskies Well-Known Member

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    My best guess, they raise rates a few times this year and next year, but before they can get too high inflation stats falling, we might get a recession here and but almost certainly will in multiple countries around the world, or even another black swan event and soon enough we are back to an easing bias.

    There is a 12-18 month window where people have an opportunity to pick up some assets at a modest discount, though the falls won't be that great because there is still a supply shortage and the cost to build has permanently increased. Most wont take action because they are fearful or waiting for some poorly defined measure of when property is finally 'cheap', so the circle of life will go on.
     
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  5. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    RBA is just talking about taking cash rate to its new normal range 2.5% which is meant to tackle normal inflation aka less the 4.5% not current high inflation of 5+%.

    MR for normal cash rate (2.5%) and normal inflation band (3-4.5%) when funded by open market will be be 4.5-5.5%.
    The issue here is, what RBA seeks to be normal, risks being too much for overleverage investors.
    There is a common assumption here on PC that market will suddenly collapse (not just overleveraged segment but broad-based) and RBA will be immediate forced to restart QE and go back to Zero (aka as early as late 2023).
    What if.... broad-based market is not really that fragile and it can absorb 2% hike, (remember high cash in bank, low lvr loans etc) Slow down but not total chaos (likely desired by RBA) and issue remains limited to overleveraged investors and one segment. Gov can meanwhile boost supply side to keep job pot boiling.
    In this case house price will still take a healthy hit (say CJs-15-25%) but this will be initially due to profit booking by very many sitting on huge profits, followed by lower demand due to BC hit (aka less of JoetheFOMOs obsession to outbid), and finally limited selling by repayment stress mostly limited to freshly minted overleveraged investors.

    Wondering if RBA will still be in hurry to intervene if its limited to property(further limited to overleveraged buyers only) but not broad-based economy wise (aka jobs etc)


    Below is 3y MR and inflation, look at how closely it has tracked, untill lately in 2020 when inflation and 3YMR started to diverge, thanks to RBAs QE/TFF)
    upload_2022-5-23_15-19-53.png
     
    Last edited: 23rd May, 2022
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  6. Simon Hampel

    Simon Hampel Founder Staff Member

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    I'm pretty sure this is due to the images being in SVG format rather than GIF/PNG/JPG - I think the current forum software doesn't know how to handle SVG images correctly.

    I suggest you convert them to PNG format and add them as attachments rather than embedding an SVG.
     
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  7. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    looks like RBA is using svg in its web articles, I will use snip-tool,
    thanks for the pointer.
     
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  8. Dmash

    Dmash Well-Known Member

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    I think the RBA have done a poor job in regards to getting in the front foot with inflation. However, that is because Dr Lowe is quite pragmatic with his responses and doesn’t want to appear to be led by markets. The fiasco around his 2024 statement and the RBA going to QT this year wouldn’t be something he enjoys being reminded of.

    That being said I don’t see them acquiescing to the bond market a second time around, I see the cash rate going north higher than 1.50% over the course of the next year with a view that inflation should taper off that alone.

    I see them eventually getting to a neutral range in the next 3 years if inflation and unemployment stay the course however that is a big IF. Dr Lowe has stated that he wants to be a in position to implement QE if needing to and the current situation does not allow that.

    Exorct some robust decisions next year as he sees out the final few months of his contract.
     
  9. paulF

    paulF Well-Known Member

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    I think it's hard to predict what the RBA might do without taking in consideration what the FED might do.

    Interesting read from Zerohedge...

    Fed Mission Accomplished: Real-Time Indicators Show The Labor Market Just Cratered | ZeroHedge

    "The desk's conclusion: "the 'labor shortage' narrative officially died in the past week." And from there to a spike in the unemployment rate and a collapse in wages it's at most a few months. Which confirms what we (and Morgan Stanley and BofA's Michael Hartnett) said previously: the recession will begin in the second half of 2022, with the Fed ending its rate hike cycle well ahead of schedule, and proceeding to cuts rates and launch its latest QE some time in early 2023."
     
  10. dunno

    dunno Well-Known Member

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    @TheSackedWiggle

    You might appreciate this podcast.
    Jim Grant: 'Rising Interest Rates Are the Kryptonite of Financial Assets'
     
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  11. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    The way this is heading, I won't be surprised if soon there comes a time,
    when a RBA hike of 0.1 would result in recession the next month followed by QE the month after, followed by inflation the next month aka RBA full cycle, from inflation to recession will be 4 month long ;)
     
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  12. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    upload_2023-2-17_17-54-23.png

    upload_2023-2-17_17-55-44.png



    "ANZ Research has revealed it now expects the official cash rate to peak at 4.1 per cent by May, up from its previous projection of a terminal rate of 3.85 per cent.

    According to the research group, the revision reflects slower than anticipated progress towards the Reserve Bank of Australia’s (RBA) inflation target of 2-3 per cent.

    “Nearly 70 per cent of mortgage debt has already been impacted by higher variable rates, and to date there is little evidence of a material impact on overall spending,” the group noted.

    “Persistence in inflation pressures suggests that the cash rate will remain in restrictive territory for some time.”

    “A higher terminal rate of 4.1 per cent looks likely to be required to bring inflation back down towards the target band over the forecast period.

    Moreover, the group does not expect the RBA to ease monetary policy until November 2024.
     

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  13. sash

    sash Well-Known Member

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    Watching Lowe's grilling from the land of smiles Thailand.

    Lots of dumb ar ses trying to shift blame for their stupid decisions or the stupid stimulus put out by the libs during Covid.

    Folks don't be surprised if the RBA does not stop raising rates till 3.85-4.1% OCR.

    Lots of people that on here were too confident ...she will be right. I reckon this cycle is a once in a generation wealth destroyer for the unprepared.

    As I have said though not a fan of Lowe. ...he has a job to do. And he is doing it with integrity. Respect for that...despite some misteps. The real issue is imbecile pollies.. the worst ones are the idiot Liv's under scomo and Josh frysenberg. Absolute clowns....
     
  14. Waterboy

    Waterboy Well-Known Member

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    RBA and APRA should be merged and share common responsibilities surrounding Financial Stability and Anti-Speculative Regulation.

    And at least APRA should be independent and not give in to politicians' requests for stupid lighter standards that got us into this trouble.
     
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  15. sash

    sash Well-Known Member

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