What might cause interest rates to drop even further?

Discussion in 'Property Market Economics' started by Humphrey, 28th Mar, 2020.

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  1. Humphrey

    Humphrey Well-Known Member

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    I am considering fixing my mortgage at 2.29%. No-one has a crystal ball, but I would be interested to hear any thoughts about why and how rates could drop even lower?

    I imagine that new mortgage lending volumes will drop significantly as people continue to lose their jobs. Could this cause the banks to lower rates in the competition for the few remaining customers? Or are there other more likely scenarios? I've seen another line of thought that the increased risk profile created by rising job uncertainty will cause rates to rise.

    Keep well.

    Cheers
    H.
     
  2. Ummm

    Ummm Well-Known Member

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    Some background reading

    https://www.theage.com.au/business/...-quid-pro-quo-with-banks-20200325-p54dvf.html
     
  3. marmot

    marmot Well-Known Member

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    But with liquidity problems in overnight money markets wasnt this going in the opposite direction.
    Is their a limit on how many times the RBA can intervene or is it limitless with little consequence.
     
  4. JohnPropChat

    JohnPropChat Well-Known Member

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    Question should be, what might cause fixed interest rates to drop more.

    A lot depends on wholesale funding costs. Why is that a borrower in Germany can source sub-1% 10 year Fixed rates. ECB rates are -ve ofcourse but not that far from our 0.25%

    [​IMG]
     
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  5. JohnPropChat

    JohnPropChat Well-Known Member

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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Oz bank margins are tight...........

    Inefficiencies, "me too banks", in part over-regulation, and entitlement mentaility of lenders and their share holders means we wont get as low as Eurozone I dont think...............yet

    ta
    rolf
     
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  7. Waterboy

    Waterboy Well-Known Member

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    Despite the RBA persistently announcing 0.25% as the lower limit, financial markets are still predicting another rate cut to ZERO!

    Last Thursday 8/4/20, the 1-mo Bank Bill Swap Rate (BBSW) settled at 0.1967%.
    (It was 0.6417% just before the recent rate cut.)

    The ASX 30 Day Interbank Cash Rate Futures showed a 45% expectation of an interest rate cut to 0% during the next RBA Board meeting.


    [The BBSW is a short-term money market benchmark interest rate for "Prime Bank Eligible Securities" which are bank accepted bills and negotiable certificates of deposit issued by banks that have met the eligibility criteria and conditions required to be a Prime Bank. BBSW is used to provide reference interest rates for the pricing and revaluation of AUD derivatives and securities such as floating rate bonds, with tenors from 1 to 6 months.]
     
  8. JohnPropChat

    JohnPropChat Well-Known Member

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    Rookie question, isn't that what RBA wanted? Low funding costs without having to lower the official rate to zero?
     
    Last edited: 13th Apr, 2020
  9. grk349

    grk349 Well-Known Member

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    Have a look into long term debt cycles. If we are at the end of one, then interest rates bottom at zero and for up to a decade.
     
  10. Mr Burns

    Mr Burns Well-Known Member

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    Good thread. Is it worth locking it in? How can they go lower?
     
  11. Waterboy

    Waterboy Well-Known Member

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    Chicken or Egg?

    If the market feels the RBA is not dressing the part, interbank market rates / cost of funds could go up.
     
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  12. Waterboy

    Waterboy Well-Known Member

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    I expect fixed rate loans to reach 1.xx% in the next couple of years!
     
  13. Lacrim

    Lacrim Well-Known Member

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    I really think you shouldn't beat around the bush like that. Just get straight to the point and ask the important questions ok?
     
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  14. Mr Burns

    Mr Burns Well-Known Member

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    o_O
     
  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    hmmmmmmmmmmmmm

    interesting view, and I know understand why the fund managers are throwing out cheap bonds to the banks, and why the banks are laughing :)

    Im not good with that macros stuff....................but makes sense

    Locked margins, ideally for 5 years.

    What happens if rates go ------- ?


    ta
    rolf
     
  16. grk349

    grk349 Well-Known Member

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    I'm no expert either but I have watched many Ray Dalio speeches on YouTube about this. He explains it well.
     
  17. Waterboy

    Waterboy Well-Known Member

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    Update

    As at 29/4/20, the 1-month Bank Bill Swap Rate (BBSW) settled at 0.0983%.
    (It was 0.6417% just before the recent rate cut.)
     
  18. Biggbird

    Biggbird Well-Known Member

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    So what does this actually mean for the likelihood of interest rate cuts? I did a bit of brief reading and am still a little confused. Either way, that seems like some pretty cheap money!
     
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  19. Waterboy

    Waterboy Well-Known Member

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    The RBA may not actually cut official rates, but the banks have a room to lend at lower rate.
     
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  20. Wattle

    Wattle Active Member

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    Yes BBSW is low but what sort of margins above BBSW will banks be able to secure long term funding when they eventually have to roll over their debt. Saved by the RBA TFF this year and deposits/loans looking good so this may not matter as much but it will still be one of the key drivers to setting of interest rates. Then again the government could come in and guarantee bond issuances / give confidence to investors as has happened in places overseas. Market and risk mechanism is all dead at the moment.....seems a convenient escape to think it will last forever but I am thinking something will have to give eventually.