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with the first of what i hope is more to come interest rate cuts i was wondering what peoples views are. as a working family with a morgage I welcome it. and as i said before hopefully more to come!!!!!!!!

They reckon rates will be down by another 1.5%-2.0% by end of 2009

Likely another 0.25% next month

Combined with the recent tax cuts, families will find some good relief in the next 12-18 months

Plus petrol prices have come off slightly

Yep, things are beginning to look up, which is good 'cos I've got a house I want to sell when the market lifts again!

All I know about interest rates is that they used to be ruled by the Reserve Bank. They don't any more. The banks decide what interest rates we pay.

Saying that, .25% is nowhere near what the reduction should be. Having worked for a bank and knowing the waste of money that occurs within the bank, an internal process review could save them squillions. But it's easier to just on charge it to the customers, so they do it - and get away with it.

gadj1976 wrote:All I know about interest rates is that they used to be ruled by the Reserve Bank. They don't any more. The banks decide what interest rates we pay.

Saying that, .25% is nowhere near what the reduction should be. Having worked for a bank and knowing the waste of money that occurs within the bank, an internal process review could save them squillions. But it's easier to just on charge it to the customers, so they do it - and get away with it.

Interest rates in general have never been ruled by the reserve bank - it can only set its rates, which have some effect through the system via their effect on the the International market, as I understand it. However I am not and Economist so perhaps someone else can expound on exactly how it works.

The banks have always been free to set their own rates for deposits and lending, and to set their own fees, just like any other private business. The government can only pressure them so far, although back in the 1940s there was some impulse to nationalise the banks coming from within the Labor movement.

What has changed is that there are fewer banks today and therefore less genuine competition. However, it is still possible to play them against each other, if you have enough assetts, and get concessions like interest rate discounts, and having fees waived. I agree about the waste, but most big businesses, like most government departments and trusts, are a shambles, run by people who barely know what is going on, so waste is inevitable.

I wonder if these bloody cuts are Rudd's fault as well .

wycbloods wrote:I wonder if these bloody cuts are Rudd's fault as well .

Of course they are, they are bad interest rate cuts! Haven't you heard Turnbull explain it?

The Big Shrek wrote:

wycbloods wrote:I wonder if these bloody cuts are Rudd's fault as well .

Of course they are, they are bad interest rate cuts! Haven't you heard Turnbull explain it?

is turnbull plan A, B, or C?????

Psyber wrote:

gadj1976 wrote:All I know about interest rates is that they used to be ruled by the Reserve Bank. They don't any more. The banks decide what interest rates we pay.

Saying that, .25% is nowhere near what the reduction should be. Having worked for a bank and knowing the waste of money that occurs within the bank, an internal process review could save them squillions. But it's easier to just on charge it to the customers, so they do it - and get away with it.

Interest rates in general have never been ruled by the reserve bank - it can only set its rates, which have some effect through the system via their effect on the the International market, as I understand it. However I am not and Economist so perhaps someone else can expound on exactly how it works.

The banks have always been free to set their own rates for deposits and lending, and to set their own fees, just like any other private business. The government can only pressure them so far, although back in the 1940s there was some impulse to nationalise the banks coming from within the Labor movement.

The RBA sets the interbank rate, which is the one we've all seen drop to 7.0% this week. That rate is the rate at which banks can borrow funds and then on-sell in the form of home loans and the like to us common folk, with of course a markup, generally between 2-3%.

Gadj, when you say the banks rule what we pay, that has always been the case. The reason bank rates have gone up in the last 8-9 months without the RBA increasing their rates is the global credit crunch. It's very complex, but what was happening was banks would do 'carry trades' where they borrow 'cheap' money on OS markets (Japan in most recent terms) where interest rates are very low (0% in Japan!!!) and then on-sell it for a premium to you and I. This has all unwound in recent months.

Banks were also borrowing short term cheap debt (around 3-4%) for as little as 3 months and then rolling it forward to cover their ability to offer debt to us plebs. All this short term funding has now dried up, so banks are having to resort to borrowing from their national reserve banks at a far higher rate, which was squeezing margins and hence, we've seen them push rates up. This is the reason big mortgage brokers like Fannie May in the US and Northern Rock in the UK have fallen over.

If you can imagine these banks were selling 100% (no deposit) fixed rate loans for 5-6% for 5 years on their ability to buy debt for 3-4% on the short term market. Now they are having to buy debt for 4-6% from longer term sources such as their national reserves, making them totally unprofitable. To compound the issue, falling house prices mean that they have a debt secured only to say 80-90% of the original loam, hence the huge write downs.

So you can see, the Aussie banks are covering themselves to avoid this happening and can afford to do so after not being as over-zealous in their risk taking as their UK and US counterparts. It will hurt us in the hip-pocket for a while, but in 2-3 years while the US and UK are only jus turning around after a BIG slump, Aus will have held sideways in both house prices and the economy to a lesser extent.

Don't expect rates in Aus to come much below 6% in the next couple of years though. Labour will spend up BIG to ensure they don't .

devilsadvocate wrote:

Psyber wrote:

gadj1976 wrote:All I know about interest rates is that they used to be ruled by the Reserve Bank. They don't any more. The banks decide what interest rates we pay.

Saying that, .25% is nowhere near what the reduction should be. Having worked for a bank and knowing the waste of money that occurs within the bank, an internal process review could save them squillions. But it's easier to just on charge it to the customers, so they do it - and get away with it.

Interest rates in general have never been ruled by the reserve bank - it can only set its rates, which have some effect through the system via their effect on the the International market, as I understand it. However I am not and Economist so perhaps someone else can expound on exactly how it works.

The banks have always been free to set their own rates for deposits and lending, and to set their own fees, just like any other private business. The government can only pressure them so far, although back in the 1940s there was some impulse to nationalise the banks coming from within the Labor movement.

The RBA sets the interbank rate, which is the one we've all seen drop to 7.0% this week. That rate is the rate at which banks can borrow funds and then on-sell in the form of home loans and the like to us common folk, with of course a markup, generally between 2-3%.

Gadj, when you say the banks rule what we pay, that has always been the case. The reason bank rates have gone up in the last 8-9 months without the RBA increasing their rates is the global credit crunch. It's very complex, but what was happening was banks would do 'carry trades' where they borrow 'cheap' money on OS markets (Japan in most recent terms) where interest rates are very low (0% in Japan!!!) and then on-sell it for a premium to you and I. This has all unwound in recent months.

Banks were also borrowing short term cheap debt (around 3-4%) for as little as 3 months and then rolling it forward to cover their ability to offer debt to us plebs. All this short term funding has now dried up, so banks are having to resort to borrowing from their national reserve banks at a far higher rate, which was squeezing margins and hence, we've seen them push rates up. This is the reason big mortgage brokers like Fannie May in the US and Northern Rock in the UK have fallen over.

If you can imagine these banks were selling 100% (no deposit) fixed rate loans for 5-6% for 5 years on their ability to buy debt for 3-4% on the short term market. Now they are having to buy debt for 4-6% from longer term sources such as their national reserves, making them totally unprofitable. To compound the issue, falling house prices mean that they have a debt secured only to say 80-90% of the original loam, hence the huge write downs.

So you can see, the Aussie banks are covering themselves to avoid this happening and can afford to do so after not being as over-zealous in their risk taking as their UK and US counterparts. It will hurt us in the hip-pocket for a while, but in 2-3 years while the US and UK are only jus turning around after a BIG slump, Aus will have held sideways in both house prices and the economy to a lesser extent.

Don't expect rates in Aus to come much below 6% in the next couple of years though. Labour will spend up BIG to ensure they don't .

Interest Rates are below 6% and Labor are spending up big

wycbloods wrote:

devilsadvocate wrote:

Psyber wrote:

gadj1976 wrote:All I know about interest rates is that they used to be ruled by the Reserve Bank. They don't any more. The banks decide what interest rates we pay.

Saying that, .25% is nowhere near what the reduction should be. Having worked for a bank and knowing the waste of money that occurs within the bank, an internal process review could save them squillions. But it's easier to just on charge it to the customers, so they do it - and get away with it.

Interest rates in general have never been ruled by the reserve bank - it can only set its rates, which have some effect through the system via their effect on the the International market, as I understand it. However I am not and Economist so perhaps someone else can expound on exactly how it works.

The banks have always been free to set their own rates for deposits and lending, and to set their own fees, just like any other private business. The government can only pressure them so far, although back in the 1940s there was some impulse to nationalise the banks coming from within the Labor movement.

The RBA sets the interbank rate, which is the one we've all seen drop to 7.0% this week. That rate is the rate at which banks can borrow funds and then on-sell in the form of home loans and the like to us common folk, with of course a markup, generally between 2-3%.

Gadj, when you say the banks rule what we pay, that has always been the case. The reason bank rates have gone up in the last 8-9 months without the RBA increasing their rates is the global credit crunch. It's very complex, but what was happening was banks would do 'carry trades' where they borrow 'cheap' money on OS markets (Japan in most recent terms) where interest rates are very low (0% in Japan!!!) and then on-sell it for a premium to you and I. This has all unwound in recent months.

Banks were also borrowing short term cheap debt (around 3-4%) for as little as 3 months and then rolling it forward to cover their ability to offer debt to us plebs. All this short term funding has now dried up, so banks are having to resort to borrowing from their national reserve banks at a far higher rate, which was squeezing margins and hence, we've seen them push rates up. This is the reason big mortgage brokers like Fannie May in the US and Northern Rock in the UK have fallen over.

If you can imagine these banks were selling 100% (no deposit) fixed rate loans for 5-6% for 5 years on their ability to buy debt for 3-4% on the short term market. Now they are having to buy debt for 4-6% from longer term sources such as their national reserves, making them totally unprofitable. To compound the issue, falling house prices mean that they have a debt secured only to say 80-90% of the original loam, hence the huge write downs.

So you can see, the Aussie banks are covering themselves to avoid this happening and can afford to do so after not being as over-zealous in their risk taking as their UK and US counterparts. It will hurt us in the hip-pocket for a while, but in 2-3 years while the US and UK are only jus turning around after a BIG slump, Aus will have held sideways in both house prices and the economy to a lesser extent.

Don't expect rates in Aus to come much below 6% in the next couple of years though. Labour will spend up BIG to ensure they don't .

Interest Rates are below 6% and Labor are spending up big

Someone will eventually have to pay for the $48 billion in stimuli and other measures to tackle the current crisis. The jury is still out on whether the current government has done the right thing, I still have an open mind on this. One thing is for sure when things improve both taxes and interest rates will have to rise.

wycbloods wrote: ..Interest Rates are below 6% and Labor are spending up big

And in a couple or three years it will be the Keating era again and we'll be waiting for the "J curve" to turn, while interest rates climb.