New historic low. RIP savers. Yay to borrowers.
Might soon be time to stuff mattresses and get paid to borrow money.
RBA Cash Rate Cut Part 3 (1.0% Reduced to 0.75%)
non-core promise on 01/10/2019 - 15:11
Last edited 01/10/2019 - 16:29 by 1 other user
Last edited 01/10/2019 - 16:29 by 1 other user
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From the RBA governor's perspective, yes. He has also been asking for help from the government for awhile now.
certainly not the only way to boost economy. Many other ways however, this is the only tool the RBA board has at its disposal.
Other tools require government intervention and investment. Right now, government are focused on surplus.
The RBA minutes of past meetings show they are trying their best to encourage government to do more, but they are not flinching.
Monetary policy 'was' one of the best ways to cool down or warm up the economy by controlling the amount of money (credit) in the market.
Thanks to the hordes of people willing to climb over each other, over-extend themselves on their loans, the government is now not unable to make interest rates even back to their mean of about 6-7%.
If interest rates climbed 1 percent in a year I suspect the default / delinquency rates would skyrocket.
I work in the industry and in fact in the teams that forecast these scenarios.
I am naive in financial stuff…so what rate is good for economy 6% or 0.75%?
There is no perfect rate, in market based economies, the cash rate is what the market can sustain and still produce enough growth to maintain stable rate of unemployment around 5% and inflation of between 2-3%.
In Australia at the moment, the economy is weak so the RBA has to cut in order for the economy to grow at those levels. Previously Australia had higher levels of immigration to mask falling growth, but because immigration has slowed, the RBA has had to cut faster in the previous year. The Government doesn't want to do anything because it knows it can get away with letting the RBA do its dirty work, whilst still keeping the promise of maintaining a budget surplus.
In centralized economies like China, the cash rate is 4.2% because the government is still injecting huge infrastructure programs into the country that maintain stable growth, low unemployment and stable inflation. A 4.2% cash rate would not work for Australia, just like a 0.75% rate would cause problems for China.
@xinyi: Good stuff xin…I am wondering if cutting rates would indeed do good for economy…It may be only good for housing economy as more people will try to buy houses using mortgage…but on flip side interest rates on savings account will deep as well…not sure how all this is going to bring economy back on track….
@pyramid: You already touched on it, but lower savings rates is the point. Disincentivised savers will either spend on consumer goods, or invest given the lower cost of capital. Either option is desirable in terms of economic growth.
@spiff: Or they'll cut spending because they now have less income. That's the option I'm going with and the magnitude of the spending cut is almost always greater than the interest income delta.
Maybe they should raise interest rates for once and see what happens. Maybe the government will get off their asses and do something. This rate cut is just stupid and unnecessary - given the levels of consumer confidence, people who have mortgages will either save the difference or pay off their mortgages faster, and savers will spend even less money because they have less income. Let the housing market do its thing and be done with it. Adding an interest rate cut to already low levels of confidence in the economy brings down confidence even more and guts consumer spending.
In terms of monetary policy the RBA is becoming the Bank of Japan. Monetary policy will cease to be a credible tool for stimulating or slowing down the economy.
@xinyi: Ah, yes, the curious building of these 'ghost cities' in China:
https://allthatsinteresting.com/chinese-ghost-citiesIt will be interesting to see if this does indeed pay off economically for China, but I'll add it to the list of reasons why it's better not to live there.
@[Deactivated]: The Ghost cities and ghost malls you pointed out are usually built by over exuberant developers. Government sells land and provides tax incentives to developers but doesn’t usually get involved in the construction of those cities, other than the occasional bribe.
Government infrastructure spending in China is running at 8% of GDP and is mostly spent on railways, ports, airports and public spaces.
China has huge mountains and wide rivers but has managed to built the worlds largest high speed rail network. The stretch of land between Melbourne and Sydney is mostly flat farm land and yet Australia is still dreaming of high speed rail. Sorry the current direction of the Australian government in terms of keeping the budget surplus at the expense of infrastructure spending is clearly backward.
Government sells land and provides tax incentives to developers but doesn’t usually get involved in the construction of those cities, other than the occasional bribe.
No, but they force developers to build ASAP after purchase, before there is actual demand in that area for residences.
China is not in a great position economically overall:
https://www.bbc.com/news/business-49791721
https://asia.nikkei.com/Spotlight/Datawatch/Quiet-capital-fl…China has huge mountains and wide rivers but has managed to built the worlds largest high speed rail network.
Sure, after how much corruption and other problems? Such statements are disingenuous as they make one truthful statement, but covers up the complexities involved with such a large project.
Sorry the current direction of the Australian government in terms of keeping the budget surplus at the expense of infrastructure spending is clearly backward.
Perhaps in some ways, but at least the Australian government isn't implementing 'Black Mirror' like social points systems, putting Muslims into concentration camps or committing any number of other human rights violations. Now that is truly 'backwards'.
China is not in a great position economically overall:
And neither is the US or Australia. You can' seriously suggest that a cash rate of 0.75% or 2.00% in the US is a sign of a healthy economy.
No, but they force developers to build ASAP after purchase, before there is actual demand in that area for residences.
I don't know where you are getting this information from and anyway what is your point? There are vacant homes everywhere
https://www.prnewswire.com/news-releases/nearly-1-5-million-…
https://www.smh.com.au/politics/federal/census-snapshot-one-…
Sure, after how much corruption and other problems? Such statements are disingenuous as they make one truthful statement, but covers up the complexities involved with such a large project.
At least China is getting things done, whilst Australian politicians fiddle on about budget surpluses and the US engages in wars of aggression over Blood Oil.
putting Muslims into concentration camps
And yet the Muslims in Xinjiang have a higher life expectancy than Australian Aboriginals
https://www.bbc.com/news/world-asia-pacific-16860974
Xinjiang-Uighur Autonomous Region
Region of China
Life expectancy 74 (men), 79 (women)https://www.aihw.gov.au/reports/life-expectancy-death/deaths…
IndigenousMales
2015–2017
71.6
Females
2015–2017
75.6Can't argue with facts regardless of how Western media propaganda likes to paint China.
@xinyi: As I suspected, another shill for Beijing. "At least China is getting things done…" - one can justify anything with those words.
@[Deactivated]: There is no right or wrong to these debates, I am merely pointing out the inherent hypocrisy in your arguments.
Too many Aussies have fallen in love with the world view endorsed by Trump and will hopefully go down the ship with him.
@xinyi: You seriously arguing the Life expectancy to justify the treatment local population??
you basically saying if they rounded up all the Chinese In Oz into Camps and provided the best care for them to live a longer life That means Chinese Australian are doing better than Chinese in china.
@DollaNsense: You are resorting to red herring to create a completely false narrative that is not realistic.
The truth is if you accept the propaganda that Western media sprouts about the treatment of the Muslims in Xinjiang, then you would believe that these people are living in sub-humane conditions, which would result in a drop in their Life expectancy due to poverty, suicide and disease.
Yet in Australia, one of the world's most developed nations, if you go to Darwin, you constantly see the local Aborigines loiter around bus stops all day, because they have no education, no purpose and are incarcerated in prison because the government provides them with only basic welfare and nothing else. Hence their life expectancy is one of the lowest in the developed world. A huge human rights violation.
@xinyi: You are not making sense here .. you are hiding or even running away from something by picking on something else .. its like saying do not worry about me stabbing little kids i hear my neighbour uses his shotgun to kill them so those kids could have it worse. You need to brush up on your arguments skills having 1 million people "missing" and putting them to camps is not something to try to seek a comparison for. I know someone who have not heard from his family in years ( father mother and his 3 little siblings) but i guess it could be worse according to you hanging around the bus stop with no education.
@xinyi: Your comment looks quite laughable now, doesn't it?
https://www.nytimes.com/interactive/2019/11/16/world/asia/ch…
There is no 'good rate'….the interest rate is required to rise and fall according to the economy's circumstances. In the early eighties the home loan interest rates hit 20%, now it's the other end of the spectrum.
What is lamentable is the government will soon lose monetary policy as a method of stimulating the economy and even in good time to come can never raise the rates high enough to prepare for the next recession.
It's not really as simple as one being better than the other. Usually the reason rates are higher is because the economy is doing well, and lower because it is not. It's not as much the rates themselves being bad. However being so low means there's basically no scope to cut rates to help kick start investment, which means one less toolkit in the bag which is a bad place to be in if the economy slumps further.
Just cut the rate to zero, and have mortgage providers follow it down to 1.5% or so. I promise I'll pay off my mortgage much faster. I can't promise to spend any more money in the economy however.
Anyone know if CBA will pass this through in full?
Investors IO 0.25% ; all other 0.13%
I wondered why the AUD took a dump across all pairs today….. :(
Were you surprised? Happens all the time when interest rates drop.
Because we dropped our interest rates. As an investor, you will get more return from an overseas investment than an AUD one so hence investors will exit the AUD causing a drop in the value of the AUD
RBA's Philip Lowe and his powerful media backers are simply protecting the interests of their rich patronage with vested interests. The property bubble is for the rich by the rich to exclude anyone else who would like to just feel a little secure. Well us common Australians can now see through the fiction of an egalitarian society fumbling along with lies and oppositional policies.
Well us common Australians can now see through the fiction
Are you sure? :-P
"No one in this world…has ever lost money by underestimating the intelligence of the great masses of the plain people. Because the plain people are able to speak and understand, and even, in many cases, to read and write, it is assumed that they have ideas in their heads, and an appetite for more. This assumption is a folly." - H.L. Mencken
Looks like the monkeys at the RBA pressed the down button again.
There are further signs of a turnaround in established housing markets, especially in Sydney and Melbourne. In contrast, new dwelling activity has weakened and growth in housing credit remains low. Demand for credit by investors is subdued and credit conditions, especially for small and medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.
What is their definition of "turnaround" here?
When a company that has experienced a period of poor performance moves into a period of financial recovery, it is called a turnaround. A turnaround may also refer to the recovery of a nation or region's economy after a period of recession or stagnation.
https://www.investopedia.com/terms/t/turnaround.aspAre they saying house prices are currently low but there will be a "turnaround" in the future and prices will increase? How is that a good thing for any non-home owner?
The Board took the decision to lower interest rates further today to support employment and income growth
Who's income? Who's income will grow after a drop in savings interest rates?
Who is income? You mean "whose income".
What about John's income? John is income?
Who's
contraction of who is: Who's there?
contraction of who has: Who's seen it?Whose
the possessive case of who used as an adjective: Whose umbrella did I take? Whose is this one?
My income will grow as I will have to spend less on interest payments on my mortgage.
The faster you pay your mortgage the better off you will be.
The more you pay the better.Interest payments are low now but principal still has to be paid. Sooner or later. Why not now?
It was just in reply to deafmute. I already pay more than I have to, and every rate drop has just gone straight back into the mortgage 👍
Im not a cpa but if the s&p 90 year avg is 9.8%, and your mortgage is around 5%. Is it not better to make minimum repayments and put the rest on the s&p?
@t_c: Because average is not guaranteed.
And it is an average of options, of investments, not a certain particular investment.It is hard to only buy "averaged" stocks … good or crap is all there. Pick one. Laugh or cry after.
Can someone explain what is actually a "cash rate"? Is that just another name for "inflation rate"? Is it just AUD/foreign currency ratio of some sorts?
And how does this affect a person like me who has never had a loan in his life and is not planning to?
I have quite a big amount of savings in AUD in my bank so I can afford to go atleast 2-3 years unemployed and still live life normally like I do now (when employed).
I still have the same amount of savings in my bank after all these "cash rate cuts".
1 AUD is still ~0.62 EUR after these cuts.Sorry, for appearing ignorant, but maybe I am.
Everybody keeps screaming "RBA cuts rates! Panic!111111" but nobody bothers to explain what it actually is and how does it affect simple mortal beings like me.Sorry, for appearing ignorant, but maybe I am.
Everybody keeps screaming "RBA cuts rates! Panic!111111" but nobody bothers to explain what it actually is and how does it affect simple mortal beings like me.Sorry, but this is literally something you could have searched for and read up on in the time it took you to write your post
https://en.wikipedia.org/wiki/Official_cash_rate
https://mozo.com.au/interest-rates/articles/what-is-the-cash…
https://www.360finance.com.au/what-is-the-cash-rate-and-why-…https://www.rba.gov.au/monetary-policy/
The Reserve Bank is responsible for Australia's monetary policy. Monetary policy involves setting the interest rate on overnight loans in the money market (‘the cash rate’). The cash rate influences other interest rates in the economy, affecting the behaviour of borrowers and lenders, economic activity and ultimately the rate of inflation.
In determining monetary policy, the Bank has a duty to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. To achieve these statutory objectives, the Bank has an ‘inflation target’ and seeks to keep consumer price inflation in the economy to 2–3 per cent, on average, over the medium term. Controlling inflation preserves the value of money and encourages strong and sustainable growth in the economy over the longer term.Thanks, I just wanted a no-bull$ explanation. It's hard to find a simple explanation. And most explanations are just explaining how it affects mortgages.
Out of all these articles, only The New Daily made sense to me. This is exactly what I wanted to hear!
All other articles are some fancy politician-tier gibberish. "money market"? "economic prosperity and welfare of the Australian people" - heard that a million times, means nothing!
mayber try watching the first 4.5 minutes of this video?
https://www.youtube.com/watch?v=xTq1-1BZx_8Basically why RBA cutting rate is such a big deal because it signals a weakness in the economy, which then has a lot of downstream impacts such as unemployment.
Exactly how will a 25bp cut in the cash rate really help to boost the economy?
- The vast majority of those with a home loan will simply keep the same loan repayments - NIL positive effect on economy
- All those with money on deposit will earn less interest, and they will have less spending power - NEGATIVE impact on the economy
- Business will only employ more staff if demand increases - as per 2. above that is difficult to imagine.
In my opinion over the past several years the RBA have screwed things up royally and basically engineered the economy into a state of stagnation We are going to be lucky if we avoid a recession.
The only argument I can think of is lowering the interest rate will deflate the Australian dollar so Australians will buy more local goods than imported Chinese stuff.
That still doesn't change the fact that the RBA using interest rates as a tool to fix the economy is the same as a carpenter using a sledgehammer to hammer down a nail.
but.we.dont produce anything… half of the aussie companies are bankrupt or sold to.ovwrseas….
So how did we get here?
The RBA wanted to prop up property prices to prevent a property crash.
Monetary policy should have been used so that:
- When times are bad, you drop rates
- When times are good or average, you raise the rates back to the norm.In the last 10 years, we never really raised our rates in the good times in fear of potentially dropping the house prices. This to me is the RBA's biggest failure in oversight and use of the rates
Now that the economy is on the down again, we only have 3 bullets left before we run out of ammo.
we only have 3 bullets left before we run out of ammo.
You think the RBA are going stop after their 3 last bullets? Protip: they can still bludgeon your head with the gun and it will hurt just as bad.
I think assuming Australian interest rates operate in a vacuum is a mistake. The rest of the world has even lower rates. The rates of the rest of the world are more important than historical averages when deciding whether our rates are high.
Armageddon is near.
If Australian's could get annual pay rises similar to what politicians get, the economy would be booming
Or get their parliamentary pensions. How a MP can get a six figure pension annually for the rest of their life is beyond me…
lol just whats needed to fuel the house prices
these bankers need to be shot
i am the messiah, and this is my message: sydney house bubble will NEVER pop, it will keep rising for a millions years to a billion years to infinity. it's a tulip fever will no end.
Considering Australians seem to take on greater mortgages with lower interest rates, rather than savers deciding to dump their savings into consumer goods, I fail to see how another rate cut is going to do any more good for the economy than the previous several rate cuts.
I'll keep saving. I have all the consumer goods I need for now.
I have all the consumer goods I need for now.
Username does not checkout.
Why can't lenders just pass on the full rate cut to loans on primary residences? If they want to retain profits then pick on investors and businesses.
They did largely "pick on" those two. Check out how much investor rates were raised about a year ago. Business rates have stayed high too with exception of those on market based products.
They're only giving some of it back now to each of these two groups.
https://www.savings.com.au/home-loans/rba-rate-cut-october/
Use this site to track what rate cut all of the institutions are passing on. Very handy!
This one is bit better and give view of rate cut in single page.
https://www.ratecity.com.au/rba-cash-rateThanks for that
The one i linked also has the last few cuts history from June and July if you click on a bank so i find it easier to compare who is being stingy over time and who is passing it all on after the last 3 cuts
UBank passed on the full rate cut, nice.
They're a top bank.
do u use ubank? do they raise rate for existing customers spontaneously?
Look i did use ubank, but had to leave cause they didn't do construction loan. During my time with them 2 years my rate never had risen, when i called them to challenge rates they were happy to do so everytime.
All 3 rate cuts passed on in full - love UBank.
damn commonwealth bank is really bad. is ubank any good for normal banking services?
If all you need are the basics they are great!
Honestly can’t rate UBank high enough. Never had a rate rise and always had the same rate offered to new customers.
as a saver im really hoping they wont cut the interest rate on saving acc, no news as yet. Still happy
The Big 4s abusing there powers and ripping customers off, arent they just a bad as criminals?
They fund most of their lending at a rate directly related to the RBA rate. They have to follow RBA rate changes closely.
Please explain the correlation between the reduction of the cash rate and the big fours abuse of their powers, ripping people off and criminality.
Is cutting repo rate is only way to boost economy? I guess our politicians are not competent enough to run this country……