Reserve Bank Cuts Rates By 100 points (1%)

[swoodley]

How much of it will the banks pass on?

From thewest.com.au:

The Reserve Bank has cut official interest rates by a full percentage point, stunning economists and financial markets.

In its first full percentage point cut in rates since May 1992, bank governor Glenn Stevens said conditions in international financial markets had taken a “significant turn for the worse” through September.

The move takes rates to six per cent, the lowest since November 2006.

Mr Stevens said the slowdown in the global economy meant inflation risk were abating.

The bank had to make monetary policy much easier in such conditions.

“The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected. Should that occur, inflation would most likely fall faster than earlier forecast,” he said.

“Given that background, the Board judged that a material change to the balance of risks surrounding the outlook had occurred, requiring a significantly less restrictive stance of monetary policy.”

In an admission of the concerns that banks may not be able to pass on all cuts in rates, Mr Stevens said the board realised the tougher conditions facing commercial banks.

“The board also took careful note of movements in funding costs in wholesale markets. Having weighed these considerations, the board decided that, on this occasion, an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers,” he said.

The unexpected move - markets had expected a half percentage cut - generated a huge spike on the Australian stock market which had been in negative territory before the announcement.

Macquarie Bank interest rate specialist Rory Robertson said the Reserve would aggressively cut interest rates in coming months to avoid sending Australia into recession.

“RBA policymakers now will do what they can to avoid excessive rises in unemployment,” he said.

“That means managing key lending rates lower, with some urgency. And not worrying too much about the recent weakness of the Australian dollar, which may or may not be sustained; if it is, recession will be easier to avoid.”

[jimmyc1985]

Damn you RBA. I was looking forward to people who've over-extended themselves being completely crushed. Damn you to hell.

[bomberdonnie]

Damn you RBA. I was looking forward to people who've over-extended themselves being completely crushed. Damn you to hell.

Haha there is a little bit of enjoyment in that for me too...

[jimmyc1985]

How much of it will the banks pass on?

I would love it for them to pass none of it on. The political outcry and squealing from people who've over-extended themselves would be extremely funny.

Seriously though, they'll pass on roughly half i think.

Damn the RBA and its borrower-friendly policies.

[bomberdonnie]

Westpac passing on .8 and Aussie .75.... Bad luck Jimmy

[jimmyc1985]

Westpac passing on .8 and Aussie .75.... Bad luck Jimmy

I think i'm going to vomit.

[Madden]

I have a strange feeling that, despite the spin, the Australian economy is in signficantly more trouble than the politicans and banks would have you believe...

[BenDoolan]

There goes the Coalition theory and campaign that the ALP = higher interest rates

[The Man from Bomberland]

hah nice pick up

[jimmyc1985]

There goes the Coalition theory and campaign that the ALP = higher interest rates

Yes. But the economic situation creates more problems for Labor than it does Liberal's facile byline that Liberal = low interest rates. There is no way they can follow through with the tax cuts already committed to be handed out without seriously blowing a hole in the budget. The forecast income tax receipts that were supposed to fund both the large surplus and massive tax cuts will not eventuate. Either they follow through with the tax cuts and severely erode the surplus, or wind back the tax cuts (or wind back something else). There will be some tough decisions in the next two budgets for Labor, some of which fall into the "on a hiding to nothing" category.

[BenDoolan]

There goes the Coalition theory and campaign that the ALP = higher interest rates

Yes. But the economic situation creates more problems for Labor than it does Liberal's facile byline that Liberal = low interest rates. There is no way they can follow through with the tax cuts already committed to be handed out without seriously blowing a hole in the budget. The forecast income tax receipts that were supposed to fund both the large surplus and massive tax cuts will not eventuate. Either they follow through with the tax cuts and severely erode the surplus, or wind back the tax cuts (or wind back something else). There will be some tough decisions in the next two budgets for Labor, some of which fall into the "on a hiding to nothing" category.

I agree that there are some extremely tough economic times ahead JC - no doubt. But I just couldn't resist the barb

[jimmyc1985]

I agree that there are some extremely tough economic times ahead JC - no doubt. But I just couldn't resist the barb

You could even go a step further and suggest that Rudd will go down as the greatest PM ever if petrol prices, food stuffs, interest rates and house prices fall off a cliff . Only downside would be a thumping recession would probably accompany those 4 things.

[dom_105]

At least we don't have to worry about that mythical beast called the Inflation Genie.

[pevfan]

There's no doubt about the Lib/Conservative Governments, they certainly know when NOT to be in power. They seem to have a sixth sense about it. Leaving Labor to carry the can for the country during the rough times in our history.
You can go right back to WW2. Menzies couldn't get out fast enough when the Japs came knocking at our door.

Yep, they're great at governing when times are good but when it starts getting a bit hot they can't get out of the kitchen fast enough.

[jimmyc1985]

http://au.youtube.com/watch?v=Wv_-21xkWpw

. Just so you know, everything is...basically sound!

A few weeks ago, behind closed doors...
AIG: Err, Mr Bernanke, we need a loan to help us out of say, well, ummm, $85bn?
Bernanke: Err ok.
AIG: Temporarily.
Bernanke: Oh, say we'll be getting it back?
AIG: ....No, we'll be needing more.
Bernanke: Well it what sense is it temporary!?
AIG: Well it'll temporarily be $85bn, but it'll end up being more.

Last night, behind closed doors
AIG: Err, Mr Bernanke, you know how we asked for that temporary $85bn?...
Bernanke: Yeah?!
AIG: Ummm, can we have some more....
Bernanke: f****** hell, how much more?!
AIG: Hmmm, well, $40bn should be ok. Temporarily, of course .

[BERT]

There's no doubt about the Lib/Conservative Governments, they certainly know when NOT to be in power. They seem to have a sixth sense about it. Leaving Labor to carry the can for the country during the rough times in our history.
You can go right back to WW2. Menzies couldn't get out fast enough when the Japs came knocking at our door.

Yep, they're great at governing when times are good but when it starts getting a bit hot they can't get out of the kitchen fast enough.

Amen to that Brother.

Ps Wheres my Right wing mate Bertie whilst all this is going on and interest rate are plummeting under his Kruddling instead of going up 16 times under his Rodent.

I'm here Filth. The Ruddling can't claim any credit for this. He will try to on his next visit to Australia.

[The Man from Bomberland]

There's no doubt about the Lib/Conservative Governments, they certainly know when NOT to be in power. They seem to have a sixth sense about it. Leaving Labor to carry the can for the country during the rough times in our history.
You can go right back to WW2. Menzies couldn't get out fast enough when the Japs came knocking at our door.

Yep, they're great at governing when times are good but when it starts getting a bit hot they can't get out of the kitchen fast enough.

lolz

so now the Liberal Party wanted to lose last years election? hah keep them coming mate

[jimmyc1985]

I have a strange feeling that, despite the spin, the Australian economy is in signficantly more trouble than the politicans and banks would have you believe...

Yes, absolutely. There are a number of sick canaries in the mineshaft that i've notice cropping up in the last couple weeks:
- A number of pretty high profile Queensland property developers have gone belly up recently, including another one today. Fire sales of their stock will take place once administrators get going. Look for a Queensland property slump.
- A mid-tier iron ore miner came out today with an announcement that its customers in China have requested that it delay shipment of some of the previously contracted iron ore. Reason? Chinese steel mills have slowed production, inventories of raw materials (the stuff we ship to them) are building up, and they're having some financing difficulties. These Chinese steel mills are already slowing production, and they're currently filling orders that were placed by the US and Europe 3-6 months ago. Europe and US are much, much worse now than they were 6 months ago. Our two biggest exports are coal and iron ore, which are both used intensively in steel production. Look for a slump in export earnings when the contracted price of coal and iron ore comes up for renegotiation over the next 6 months.
- Mate of mine works for Bankwest, which was recently sold by its distressed London parent to Commonwealth at less than book value, which of itself implies Commonwealth are expecting impairments on the loan book. Commonwealth are winding back Bankwest's eastern seaboard operations rapidly. My mate is an agricultural banker, i.e. writes loans to farmers, and they've been told to start calling in quite a few of the loans that were underperforming. Banks are losing patience with tardy borrowers. Look for a steady increase in all sorts of consumer-related credit defaults starting about now.
- Job ads fell to a 7 year low, and the employment market is softening. Look for a steady rise in unemployment.

We'll be hard-pressed to avoid a recession.

[The Man from Bomberland]

That Queensland property slump your eferred to is already on. Auction rates in Queensland recently were the lowest in the country. Some tough times ahead. Time to save that extra cash.

[BenDoolan]

I agree that there are some extremely tough economic times ahead JC - no doubt. But I just couldn't resist the barb

You could even go a step further and suggest that Rudd will go down as the greatest PM ever if petrol prices, food stuffs, interest rates and house prices fall off a cliff . Only downside would be a thumping recession would probably accompany those 4 things.

Interest rates tumbling, fuel prices tumbling.......

Hmmmm