RBA keep rates steady
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The Reserve Bank of Australia (RBA) kept rates steady at a near 50 year low of 3.00% yesterday amid increasing levels of positivity about the state of the Australian economy.
Glenn Stevens the Reserve Bank Governer indicated the RBA still had room to reduce interest rates should the need arise due to the marginal impact of inflation in the current forecasts. While Glenn Stevens indicated the RBA still had scope to cut rates the general tone was positive and the state of the Australian and global economies would have to further deteoriate for the RBA to consider a cut.
It is highly likely we have either seen the bottom or are with 0.25% of the bottom of the cycle. Some forecasters are already looking at an increase in early 2010 as the uptick takes hold.
Banks cut rates in response to RBA decision
With the RBA cutting rates by 0.25% in April to 3.00%, a 49 year low, the bank gave a clear indication the market is nearing its low in the interest rate cutting cycle.
The RBA is likely to lower the offical cash rate by only another quarter to a half percent before it reaches the bottom of the rates cycle. From that point it will only stay low for a short period it would seem until rates start rising if previous recessions are anything to judge.
In response to the bank cuts Westpac, St George, Commonweath Bank and ANZ all cut their rates by 0.10%, NAB failed to pass on the cut. The decision by the banks gives the RBA some additional margin to cut further in a time when the economy is about to start the early phase of what is expected to be a short and sharp recession.
While all the banks have been under considerable funding pressure the majors have all come through this with a massive increase in market share as the expense of the second tier banks and the non-bank lenders. The majors now have easliy in excess of 90% market share and margins considerly higher then previosuly. Despite the rise of loan defaults the additional margins by the banks have given them a tremendous position of strength that few global banks share.
One thing is certain that the Australian banks are world leading and banks like ANZ who are looking to expand now into Asia are doing so from a position of strength that will setup growth for the next decade.
RBA decision to keep rates stable raises questions
The RBA this week announced that interest rates to stay on hold this was met in some circles with applause and others questioning the logic of RBA governor Glenn Stevens.
Despite the economic performance of Australia faltering it is still comparing very well against fellow OECD countries and has arguably stood up as one of the best in the current downturn.
It is this performance while still a contraction in economic growth that helped determine the RBA board decision to keep rates the same at 3.25%, a 45 year low. Interest rates have been forecast to fall to around 2% this financial year but we are unlikely to see any big cuts like 0.75% and 1.00% as the RBA expects the stimulus to support the market in due course.
Do you think the RBA made the correct decision in not cutting rates in March? Share your thoughts by adding a comment.
What will the RBA do in March?
Well March is just around the corner and the next RBA meeting will decide on monetary policy for another month. Since September 2008 the RBA have cut rates by 400 basis points, what does March have in order for home owners, investors and the economy?
Glenn Stevens perhaps has one of the hardest jobs in Australia. Stevens has to decide if enough liquidity has been pumped into the local economy with recent interest rate cuts or if more is required to stimulate domestic demand.
The result by Harvey Norman and the halving of profit is an omen for the consumer hed Australian economy and an indication that things are likely to get much worse before they get better.
Consumer demand despite government stimulation before Christmas has failed to bounce post Christmas as households tighten belts with increasing job losses and negative sentiment affecting the economy.
The RBA boss has already indicated that he would like to sit back and assess the economy in light of all the recent economic stimulants announced by the government and any future rate cuts are unlikely to be as big as recent cuts.
I suspect we will see a cut of 50 basis points in March that will take us to a cash rate of 2.75%. Future cuts will likely continue to occur and could take us down to 2.00% in the coming months but Stevens will be monitoring the economy for worsening economic news before he pulls the trigger for big future cuts.
RBA rate cuts slowing
Glenn Stevens has signalled the RBA will carefully consider future cuts in response to the stimulus package of the Government and recent RBA cuts that have lowered rates dramatically over recent months.
Economic forecasters are still expecting rates to drop to around 2.00% from the current 3.25% but future cuts will not be made unless economic conditions clearly deteriorate further. This is something Glenn Stevens indicated in his address in response to the global economic conditions affecting the world.
Australia is stil well placed comparative to other nations currently but a substantial decline in conditions cannot be underestimated and the RBA seem focused to respond quickly should the economy continue to falter.
RBA signal slowdown in major rate cuts
The RBA have given a clear indication that future cuts will be much more moderated and the chance of major cuts may be over with the release of their quarterly statement on monetary policy.
The rate cut this week took the RBA rate to a 45 year low. With the fiscal stimulus of recent rate cuts and the Government’s stimulus package the economy the RBA is likely to sit back and monitor the impact on the domestic economy before further cuts.
The RBA expects growth of 0.25% in 2008-09, while forecasting 1.25% in 2009-10. Perhaps even this estimate could be excessive in the global malaise continues.
RBA cut rates by 100 basis points
The Reserve Bank of Australia cut rates by 100 basis points today to take the official cash rate to 3.25%. The cut comes on the same day as Prime Minister Rudd announced a $42 billion fiscal stimulus aimed at short and long term benefit to stimulate the Australian economy and protect jobs.
The RBA have now cut the cash rate by 300 basis points since September 2008 to the lowest point since 1964.
Next month is not likely to see as greater cut as those of recent months as the RBA look towards the Government’s fiscal stimulus to kickstart the domestic economy from the global turmoil inflicting markets.
RBA to slash rates
The Reserve Bank of Australia is expected to slash rates by 100 basis points this week as the Australian economy is in recession and looking down the barrel of a world economy that has badly derailed.
With the world in recession the RBA will need to act swiftly to reduce interest rates in a move to boost domestic growth and inspire confidence in a domestic economy that badly needs a boost amid rising unemployment and falling consumer spending.
With inflation no longer the problem, that it has been in recent years, the brake is no longer on Glenn Stevens allowing him to act decisively to boost domestic growth. The Australian government are also likely to support the domestic economy with another rescue package expected to be announced in coming days.
Australian Bank Watch will announce the rate cut when announced this week.
RBA set to cut by 0.75% in February
With the Australian economy struggling and fears of a doubling in the unemployment rate over the life of the current economic cycle the Reserve Bank are likely to react swiftly again by slashing rates by 0.75% in February. This would take rates to 3.50%.
The money markets have already priced such a cut into the market as the Australian economy balances on the edge of a knife with increasingly negative news each day.
With concerns of rising unemployment and falling GDP the interest rate cuts seem a certainty as the RBA is forced to react to prevent failing confidence in the economy. While the cuts with be a huge boost for home owners the general consenus is for harder times ahead as consumers prepare for a tough period in the economy with many fearing job cuts.
Where to on interest rates in 2009?
Well this is what most Australian’s want to know in 2009. How low will interest rates fall to prevent Australia from a hard landing well it would seem we may be aiming for a 2.00 to 3.50% target range in 2009.
The world recession continues to roll on and bad news is getting more and more each day. In fact it could be said the negativity in the market has dulled somewhat as people are getting used to hearing bad economic data every day.
Australia while still holding up well is certainly not immune, 2009 will likely show a healthy rise in the unemployment rate and we are likely to hit record low interest rates. Some economic forecasters are expecting the RBA to reduce rates to as low as 3.00%, that is a 1,25% cut from current levels.
This is excellent news for home owners and those entering the housing market but it must also been seen in the light of the harsh economic times ahead. For the RBA to lower to those levels things will have become considerably worse for the domestic and global economy.
I had forecast some month’s ago we were likely to hit 3.75% in 2009, it now seems almost certain we will go lower. In fact the money markets are forecasting a cut of 0.50% in February, this will lower the RBA rate to 3.75%.
On the flipside the funding costs for the banks are also decreasing so we should be seeing cuts from the big banks on their rates in the coming months outside of any reduction by the RBA. But without healthy competition in the matket I suspect this unlikely.
How do you think 2009 will pan out? How low do you think the RBA will cut rates?