Australian interest rate cuts back on!

It will be no news to MB readers of course but rate cuts are suddenly back on. Although none of the happy economists that seems to hog the Australian media discussion is yet to admit it, global and local data and commodity prices are becoming more unfriendly to their optimistic projections.

For those of the bull trap persuasion it is far too early to crow but I will note that interest rate markets do appear to have topped and are forming a new trend down (or up you’re a bond guy):

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Markets are now pricing one rate cut in the year ahead, with more to come…

David Llewellyn-Smith

Comments

  1. more rate cut, house price to the moon, pretty much independently of the economy ( aka NZ ).It s going to be a hard game to play to replace real wealth creation from the mining export by property activity.

    • Correct, Dam.

      When urban land rationing regulations result in an urban land price bubble, the economy is like a cancer victim with a very virulent cancer and monetary policy is like chemotherapy.

      Strong enough chemotherapy (high interest rates) to keep the urban land prices under control, kills the patient anyway. That is, the productive sector is killed with high interest rates at the same time as the urban land price bubble cancer.

      But with weaker chemotherapy, the cancer grows more rapidly and again the patient ends up dead anyway.

      Rejoicing at urban land prices rising is like rejoicing at a cancer growing, and interpreting this as a sign the patient is recovering.

      Adam Smith had “the price of dwelling places” assessed correctly in “The Wealth of Nations”, 1776. It is an “expense”. It just lasts longer than another expense like clothing.

    • “house price to the moon”

      Yeah, because the rate cuts up until now worked so well to do just that.

      Oh no, wait, they didn’t.

  2. I am not so sure anymore re interest rate cuts, does the unlimited printing of Japanese money have implications for the Yen carry trade, if this was to change we might see a trigger for a much lower AUD

    • JPY cracks 102 this morning. 5% devaluation since Friday.

      Anyone holding JPY is getting smashed.

    • I thought this would provide cheap wholesale funding somewhere along the line. JPY getting smashed; equities going ballistic.

      • I think Jap equities will go ballistic but Japan is also now running a CAS for the first time so I suspect that inflation will begin to pick up.

  3. The $AU was too high before the start of the world currency war going overt.

    We are going to be left high and dry as the bolder countries slash like Edward Scissorhands having an epileptic fit.

    Currency crunch or house bubble burst either way the future looks smelly gents.

    Just the right time to sign up for half a million dollars worth of debt with a moody, materialistic partner lol.

  4. It’s certainly looking more and more important for individuals and families to resist the siren call of the cheap money.

    The politico-housing complex are just calling for more and more of the naive to line them-selves up to be the cannon-fodder of the short-term goal of propping up employment.

    The politicians don’t know what the long-term will be, but we now have striking examples of the damage high private debt does to an economy, and we have a teetering terms of trade. It’s pretty unedifying to see politicians that should have people’s best interests at heart giving people only half the truth on the true risks.

  5. StanGoodvibes

    I took a punt and fixed my NZ mortgage for 1 year last June at 4.99% because I expected the global economy was going to deteriorate taking Australia and NZ with it, and OCR rates would start a slow steady downward spiral to around 1% along with everyone else.

    2 1/2 months to go and so far I think I’m still looking at a win.

    • Roll-over time vibes look good, Stan!
      “Kiwibank has cut its one-year home loan rate 4.99% p.a. ….there were no special conditions for the rate such as high deposit requirements…”

  6. Reading a few of the comments above got me thinking about something that has been going around in my mind for a while.

    I hope I don’t get accused of misogny but it seems that at least in my family (my siblings and siblings-in-laws) it is the women who the drivers of house purchases. My female relatives really buy into the whole stability and putting down roots thing. My mother and sisters are always asking, so when are you ‘buying’.

    Thnkfully I’ve managed to convince my wife of the folly of buying at current prices, but is there anything to this?

    Are women more inclined to want to leverage up to buy a home? Is renting something women find un-appealing?

    • You may be right but I won’t touch this with a bargepole … don’t know what the gender split is on MB all the same I like to breath without the assistance of a machine!

      😉

      TM.