Yesterday the Reserve Bank lifted interest rates and its impact will almost immediately be felt across middle Australia. Obviously the Liberal party will be saying one thing and Labor another! Also what about the role the Reserve Bank has played over this whole crisis?
When can the Labor Party be blamed?
At what level do you think Interest rates could get to where you could possibly blame the Labor Party for its economic management? 4,5,6,7%?
Property Prices
Coming off Spring, what effect will Interest rates play on the modest rises in property across the board? Is another boom possible? Or will it get worse and will we see another mini bust?
The Reserve Bank
Should we trust the Reserve Bank? Should the Reserve Bank be held accountable for its practices and if so, by who?
Look forward to your feedback!
13 Comments
Bill Burdin
To this bar stool economist the decision to lift rates appears contradictory.
On the one hand we have the government stimulating the economy and on the other hand the Reserve bank lifting interest rates.
Sorry but I don’t get it.
What really bugs me is the government uses my tax dollars to stimulate and I now have to pay the increase in my mortgage repayments with after tax dollars so it’s a double hit.
But to your poll, I think we are in the eye of the storm and property along with other markets will crash again.
My reasoning is that the underlying cause of the crash has been massive debt, which is still there. It’s only been moved from corporates to governments.
The US economy is still in the gutter and until it becomes stable the whole world is on knife edge.
Without a strong US economy China’s economy is dead, domestically they may appear fine but unless they can export for profit they are on borrowed time.
Unfortunately we need the US to get their act together and right now they have one foot on the banana skin.
I believe property will take a massive hit probably worse than what the share markets took.
The first home buyer is paying around $400,000 at low interest rates that will rise. You don’t need to be a rocket scientist to work out what’s waiting around the corner.
By the way I may seem to be a peddler of doom, but I know in any crash there are two sides, winners and losers, just got to make sure one is placed as a winner.
Nick
I was under the impression that interest rates dropped to soften the blow from the world wide mess, and now that they have gone up slightly its a good sign that we are recovering?
I could be wrong, but thats what I thought.
Glenn Batten
Kev got a lot of pat on the backs recently from other world leaders about Australia not officially falling into recession and I reckon its the prestige of being the first to officially lift rates, because our economy is back in forward gear.
I don’t think we needed the interest rate, but the minimal increase sends a positive message to Australians and the world of the state of our economy.
A lot of economists and the public thought the recession was a fait accompli but they were wrong. We are not out of the woods but we are on our way.
I personally predict no more movements till at least the middle of next year unless the economy really gets motoring.
Glenn Rogers
Rates going up , FHBG back to normal house prices will start to fall.
BUT – Rudd changed the rules not long ago very quietly, read on –
Foreign buyers blow out the housing bubble
http://www.crikey.com.au/2009/09/21/the-role-of-foreign-buyers-in-the-ever-inflating-housing-bubble/
The bubble may continue for a while but when the Chinese lose interest it will be every man for himself.
Robert Simeon
Watch this space!
Aust rate hike prompts early election talk
By Rob Taylor of Reuters
A decision by Australia’s central bank to lift interest rates has increased the chance of a snap election, political analysts said on Wednesday, with the government frustrated by the likely defeat of key emissions laws.
The Reserve Bank of Australia on Tuesday raised its key cash rate by 25 basis points to 3.25 per cent and flagged more hikes to come, putting the country ahead of other Group of 20 central banks as the global financial crisis eases.
But with the Labor Government facing Senate defeat of its vaunted emissions trade laws and unlikely to win over opponents before a crucial mid-November vote, the bank’s decision will worry Prime Minister Kevin Rudd, analysts said.
“The RBA is a game-changer,” Monash University political analyst Nick Economou told Reuters.
“With the indicators being that the bank is starting to ratchet up interest rates, the Labor Party would be thinking, ‘we ought to go to a poll sooner rather than later, because if we go as scheduled in November next year, there might be three or four interest rises by then’,” Mr Economou said.
Economists expect the central bank to gradually move raise rates to around four per cent by next year, with investors pricing in a 75 per cent chance of a further rise to 3.5 per cent by November, following Tuesday’s hike.
Jenni Abbott
I agree with Bill and I think a mini bust is on the way.
When remove conversation from the high level of politics and talk to people on the ground. Retailers are hurting. Those who I have spoken to have said that stimulating the economy has certainly softened the blow of recession but casual staff who were on 30 hours a week are only getting 15 and business are cutting cost everywhere, as people stop spending. It has to hurt us soon, especially with interest rate rises on top.
Whether this is just a lull in the ecomomy due to the average jo using up their stimulus bonus, maybe construction etc will carry the fall is probably yet to be seen. But it could mean that we have just put off the inevitable.
Certainly as soon as we have to start paying off the huge debt that has now been created, the money has to come from somewhere and again every Australian will end up paying a lot more than maybe what was gained by avoiding the recession.
As Glenn said when china looses interest, gosh, too scary to think about.
Recovery, scary future or stability, who knows, I am sure will will soon find out?
Sal Espro
Room on that barstool Bill? You seem to make sense but I might’ve had a few too. If the US ain’t a buyin’ then China cain’t sell. If China cain’t sell then it don’t need no coal and steel. And as we all know by now, Aus. has no fall-back industries when those two dip! We must be a land of dopes tho cos apparently our imports still haven’t decreased much!
Sal Espro
Ps Wrt Kev and elections, one thing’s certain, ‘Mashmallow Mal’ from over the bridge isn’t going to be the Saviour! *L*
Sal Espro
Apparently employment is at an all time high and the RBA reacted directly to this. Still, a lot would seem to hinge on our global interactions, you would think. But then again, where does our expanding pop’n sit in all of this?
Time for another drink – hope we don’t fall off this topsy bar stool, Bill 🙂
Greg Vincent
I’ve never understood why they have to increase rates by .25 or .5 of a percent.
While interest rates are at such an all time low, a .25% increase represents an increase of approx. 5% of the total interest rate.
Surely, a 0.1% increase would have signalled a similar message about the RBA’s thoughts on how our economy is heading without overly impacting on the mortgage repayments & borrowing capacities of homeowners/buyers.
They’d want to go a lot slower with rate increases than they did last time, especially because the interest rates are lower this time around & because our country is now in a hell of a lot more debt.
Robert Simeon
Greg, (I have been researching this for tomorrows edition) – the Big Banks now control about 80 per cent of the total housing funding. Their Cost of Borrowings are much higher than the currenct Cash Rate. Meaning that regardless of what the RBA say they will make their own decisions which we have seen recently. Basically, moving the Cash Rate to slow inflation for example is not really an effective tool as the banks don’t really anymore care.
In my opinion Rudd/Swan should not have allowed Westpac to acquire St George and CBA acquire BankWest – they have lessened competition. It may be a different story if households could then borrow through the RBA in the form of bonds from our Super funds as Australia is now the third largest Super entity on the planet. Now that would make the banks much more accountable 🙂
Sal Espro
Robert, the Govt has removed home loan competition by guaranteeing the banks and shutting-out non-banks. As the only real competition to banks comes from non-banks, consumers have no choice@#! Remember Aussie and Wizard and Rams and St George and … ah, the good ole days when Australia was a democratic, free-market economy!
Robert Simeon
Sal – you are 100 per cent correct – those were the days!