Click on link below for several analysts comments regarding interest rate rises:
http://afr.com/articles/2005/02/18/1108609389927.html
Jason
I agree with JP Morgan’s prediction. The RBA must raise rates, and soon. However I think this will be a temporary measure as even a 0.50% increase will decimate consumer confidence, spending and house prices. The effect on inflation, employment and GDP will not be immediately apparent and the reserve will be slow to react (again!) Once the economic situation becomes clear, they will be forced to ‘lower rates’ again rapidly and sharply. Unfortunately I expect by this stage it will be too late to avoid a rather severe slowdown in growth…
So there’s my doom and gloom for the night!
Cheers, F.[cap]Half a percent in 2 steps of .25% will knock whatevers left on the head and as f said, the old RBA will have both overreacted and done so too late. Things will bite along with NSW land taxes which for the first time will affect the “common man/woman” The RBA will say “OOps” and lower the rate down at least .25% fairly sharply saying to the effect “we hadn’t realised that the economy was slowing so quickly of its own accord”
Talk about the status quo………Hi Peejay – do you see any chance that we might end up with interest rates even lower than they are now?
Cheers, F.[cap]Are they going up?
http://www.theaustralian.news.com.au/common/story_page/0,5744,12331745%255E2702,00.html
Derek
[email protected]
0409 882 958
Property investment advice and researched property in quality locations available.Have a feeling the reserve might wait a while after such strong words of warning.
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
Hi Derek,
I wonder whether the RBA will try to act to protect the situation described in the article:“The other side of the current account deficit is that we’ve got a capital account surplus. The rest of the world thinks this is a great country to invest in and is willingly pouring 6per cent of GDP in as foreign savings.”With IRs rising in the US & UK (perhaps?), Australia may have to follow suit or be seen as a less desirable investment destination.
IMO the RBA should have acted before now in order to:
– Suppress the housing bubble
– Lower household spending & debt
– Reduce CA deficit
– Control inflation
– Increase foreign investment in Aus
Unfortunately the first 4 items have been left untethered for too long and the RBA now feels they must act at a time when growth in employment, GDP, company profits and house prices may have peaked… [blink]Cheers, F.[cap]
Historically Australia has always run a CA deficit, admittedly not as large (as a % of GDP) that we have now.
Last time, this was deemed at a critical state, in the mid to late 80′, the increase in rates had little effect on the CAD. In fact at least initially, it increased it. The recession did though.
Interest lag effects IMO make this policy instrument ineffectual to address trade imbalances without unnecessary collateral damage.
I’m not sure what all the hype is about at the moment. It’s all speculation until interest rates actually go up. The headlines are getting a little irritating of late. One day it’s certain the next day it’s maybe. Just watch the Aussie dollar go up and down like a yo-yo with all the interest rate pundits trying to second-guess the timing of the RBA’s next move. We all know that Ian Macfarlane has stated that rates are more likely to go up than down but he has been particularly coy about when it will happen and the magnitude of the increase.
In my opinion, if a small rate rise of 0.5% is going to rattle the economy then we know we’re in over our heads in terms of our debt level. If that’s the case then better sooner than later… before the situation is allowed to get any worst.
As a final point, just ask yourself this: does the threat of an interest rate rise worry you? Answering yes to that question should prompt you to think about why you’re in the property investment game at all.
O-Sienna,
It might not effect the more seasoned or astutue investors, but it may have a real effect on the highly leveraged borrowers and generally has a psychological effect (if not financial )on Mr & Mrs Jo Average.
Increasing interest rates does change the environment somewhat, so it does provide a discussion point.
In this current cycle, the media, they have been jumping at the interest rate shadow since December 2003.
Originally posted by woodsman:The recession did though.
Yup, and I believe the only reason we haven’t been in recession (yet) this millenium is because the RBA have provided consumers with easy credit, and they have responded by propping up the economy with record levels of household debt. Unfortunately this can’t go on forever. The longer this false economy prospers, the bigger the debt and the worse the consequences. I’d rather a little recession…
Here’s somebody who has the ability to better explain himself…Cheers, F.[cap]
Originally posted by woodsman:It might not effect the more seasoned or astutue investors, but it may have a real effect on the highly leveraged borrowers and generally has a psychological effect (if not financial )on Mr & Mrs Jo Average.
I don’t think that there are a lot of seasoned or astute investors out there at the moment. Most have probably sold a large proportion (if not all) of their holdings in the past 2 years and gloated over their hefty profit$. The vast majority of recent property investors have been the “mum and dad” types who are probably clueless about the interest-rate threshold their portfolios can sustain before it becomes a financial burden. You know, the “buy-and-hold”, “time in the market” and “real estate is a passive investment” types. People can get too used to record low interest rates..
By the time they realise it has burnt a massive hole in their pockets panic will have set in and that’s when the real damage will begin. Of course, they may have the option of fixing the rate if they haven’t already done so but that only buys you time (5 years at most) and it does not come for free. You may be risking a little bit more for the chance that the situation may improve at the end of the term.
The easiest way to weather the interest rate storm is to be cashed up so that you can temporarily reduce the gearing and ride it out. With so many hocked to the eyeballs this is not a likely option. It’s not hard to calculate the risks when investing in property and the interest rate is only one element in the equation. I am alarmed by the number of people who still believe that real estate is a one way bet.
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