RBA Interest Rate Cuts Ineffectual?

RockyRaccoon on 23/02/2015 - 14:45
Last edited 23/02/2015 - 14:46

According to Saul Eastlake, he thinks the RBA's rate cutting doesn't have the desired effect any more.

Article here discusses this

http://www.smh.com.au/business/the-economy/saul-eslake-says-…

I have set up the poll to get an understanding of how it effects you.

I have gone past the traditional, mortgagees gain and savers loss responses.

You may have two views, but choose the one that you think is most important

I have permitted change of votes as you might see discussions that influence your vote.

I raise the poll as a friend mentioned that their take on the RBA's latest rate cut to the lowest in around 40 years ( 1968 on av Home loan rates higher than 5.88 vs 5.31 now)

Their comment was that our economy is now in deep trouble, given the RBA is no longer concerned about higher house prices, but the economy instead. To do what a few years ago they wouldn't do is a worrying sign. So much so the friend says he will watch what he spends rather than do what the RBA wants. And he wasn't a saver before.

Traditionally I just thought about spending more when interest rates fell.

That's why I thought a poll might be interesting

Hence the questions are

Lower Interest rates…..

Poll Options

  • 0
    Help me as I have a mortgage and I will spend more
  • 23
    Help me as I have a mortgage and I reduce my debts
  • 2
    Don't effect me either way
  • 1
    Tells me the economy is tanking but I am not affected
  • 7
    Tells me the economy is tanking and I need to be careful on what i spend
  • 7
    Mean I get less from my savings and I just accept that
  • 1
    Mean I have less money to spend so I need ozbargain even more
Financial

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Comments

  • Cluster on 23/02/2015 - 17:30

    I'm about to have my mortgage reduced to 4.29% and do not plan to spend the $30 or so I'll save per month. I will keep it in my mortgage and help pay down debt faster. So in that way, RBA cuts are ineffective in getting me to spend more. On the other hand if rates were to rise from here I would certainly look to see where I can cut back on spending in daily life.

    However, if banks continue to reduce interest rates then the cost of the mortgage could effectively fall to the real rate of inflation (not the RBA advertised rate). In that case it would take pressure off me to keep repaying the mortgage. That moment is unlikely to come however, as the RBA can cut to 0% like the USA and Europe have done, but mortgage rates would remain at least at the 10 year bond rate.

    • RockyRaccoon on 23/02/2015 - 17:40

      You raise an interesting point. If they continue to drop, will inflation stay the same.

      We have yet to see any impact of the lower dollar on inflation, and at the same time crude oil prices have dropped, otherwise we might have seen higher fuel costs, rather than lower fuel costs, which would have nabbed to inflation.

      While many companies may have hedged their overseas purchases and we have some free trade deals starting to take effect inflation may at the present time be contained.

      Higher inflation can help home owners as it can push up prices of replacement stock, while the purchase price is fixed at todays prices, whereas it can negatively impact the homeowner if the RBA decides that inflation needs curtailing, with higher rates.

      It looks like the RBA maybe getting squeezed and that then gives it limited ability should the economy really go sour.

  • horsome on 23/02/2015 - 23:42

    I think people forget about the affect rate changes have on business borrowings.

    Lowering interest rates can help businesses either stay afloat or assist in investing in new capital or even create more jobs. Businesses aren't looking to buy new houses so it is a moot point in this regard. When you compare the millions of potential dollars saved in business to be used for productive purposes compared to the Jones being able to take out their family out once more every two months, it means a lot more to this country than the 'experts' are failing to acknowledge.

    There are other factors that cause housing inflation like NG, supply, population growth, etc, reducing rates incrementally will have same incremental effect, not worth worrying about if business can survive and prosper.

  • omghi on 24/02/2015 - 23:29
    +1

    I think we are starting to see people get smarter with money and more discerning when it comes to possessions. It doesn't matter how high or low rates are, money wasted on rubbish is still money wasted on rubbish.

    As a member of Gen Y I expect to need to fully fund my own retirement and don't expect that my super will suffice on its own. Housing is expensive and I'm still saving towards that goal. My children also will probably need considerable financial assistance if they want to attend university in the future. All these things and more influence my spending decisions more than interest rates do.

  • [Deactivated] on 26/02/2015 - 23:46

    The problem is reducing debt is "wealth destruction", if you follow the philosophy that Debt=Money… Lol.

    Expect a lot more asset price deflation in the near future. Stock markets and so on are correlated to more debt. Apparently, at least that is what the economic theory states.

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