1% cut - does it change anything for you?

[Sploosh]

A 1% interest rate cut today, bigger than most people were expecting, but we'll have to see just how much of it banks pass on. Does it make a small/significant difference to your daily life?

[Psyber]

Nope.. except the $AU will fall against other currencies temporarily, so I'll have to watch for the recovery in preparation for going overseas.
It should bounce back as confidence in trade picks up and the demand for resources with it.
House prices may lift again with lower rates once general confidence has recovered too.

[Ian]

Only if the bank passes it on

[devilsadvocate]

WBC to pass on .8 of a % which is a start.
Remember that the problem is the availability of money between banks to on-lend to all us muppets.
Dropping the interest rates significantly can only work if as has been said banks pass it on, which they can only do if they themselves can secure cheap money to allow them to lend to us with a margin to keep up their monster profit levels.
So the most important thing the RBA needs to do is ensure there are funds available for banks to profitably on-lend, otherwise, this cut will achieve zilch.

And Psyber on your point with resources, the US is driving much of the negativity on commodities markets, but IMO, Aus is reasonably insulated from that as my understanding is our biggest customers are China and India, both of whom are still growing nicely.

[smac]

Coming out of a 3 year fixed rate next April, everything they cut by now will help me at that time. Any change in MV lease rates will be useful to me in the next month or two as well. In the next months it is any other effects on day to day consumer goods that will impact on me and my family.

[Dirko]

Coming out of a 3 year fixed rate next April, everything they cut by now will help me at that time. Any change in MV lease rates will be useful to me in the next month or two as well. In the next months it is any other effects on day to day consumer goods that will impact on me and my family.

Ditto

[Psyber]

WBC to pass on .8 of a % which is a start.
Remember that the problem is the availability of money between banks to on-lend to all us muppets.
Dropping the interest rates significantly can only work if as has been said banks pass it on, which they can only do if they themselves can secure cheap money to allow them to lend to us with a margin to keep up their monster profit levels.
So the most important thing the RBA needs to do is ensure there are funds available for banks to profitably on-lend, otherwise, this cut will achieve zilch.

And Psyber on your point with resources, the US is driving much of the negativity on commodities markets, but IMO, Aus is reasonably insulated from that as my understanding is our biggest customers are China and India, both of whom are still growing nicely.

Yes, I agree with you broadly, but I am aware that US retailer Wal-Mart is one of the top 5 purchasers of Chinese manufactured goods, so a down turn in consumer spending in the US may impact on Chinese industry, and thus on their demand for our resources...

[spell_check]

AUS$ goes down, petrol goes up, so that cancels out the savings.

[Squawk]

Dropping the interest rates significantly can only work if as has been said banks pass it on, which they can only do if they themselves can secure cheap money to allow them to lend to us with a margin to keep up their monster profit levels.
So the most important thing the RBA needs to do is ensure there are funds available for banks to profitably on-lend, otherwise, this cut will achieve zilch.

Well work this out:
Banks were already applying a premium of 55 basis points to the official cash rate.
The Reserve Bank cuts the official rate by 100 basis points.
The banks pass on a cut of 80 basis points - keeping a further 20 basis points to add to their (existing) 55 basis points margin!
They now have a margin of 75 basis points above the official cash rate, so banks have actually increased their interest rates and cleverly disguised it amongst the hype of the RBA's big announcement!
Unless my calculations are flawed that is....

Cue, Dutchy.....

[Dutchy]

I was only thinking that on the way into work this morning Squawk

all good news, the shares price has taken a hammering lately

[Q.]

It just goes to show that the non-competitive banking sector continues to hurt the average Australian.

[Dutchy]

It just goes to show that the non-competitive banking sector continues to hurt the average Australian.

I reckon the US and UK situation with their banks is hurting consumers even more...give me our current set up anyday

[Q.]

It just goes to show that the non-competitive banking sector continues to hurt the average Australian.

I reckon the US and UK situation with their banks is hurting consumers even more...give me our current set up anyday

Doesn't mean there isn't a need for change or improvement. The oligopolic nature is getting worse.

The banks cry poor at being unable to pass on interest rate cuts, yet clearly have the funds for aquisition (see CBA takeover of HBOS), which in turn reduces competition.

[Psyber]

I'm not fussed about paying a little extra on my mortgage, 'cos I own shares in each of the major Aussie banks.
Swings and roundabouts I guess...

Looking at the performance of the managed funds over the last 20 years my advice to anyone would be to spend the money to set up your own self-managed superannuation fund as soon as you can and just keep dropping in as much as you can afford. It can start as just a moderately high interest banking account in the fund's name. Then talk to various advisors, but notice that they all try to shunt you in different directions, and then make your own choices based on what you have learned after you have been watching the financial pages and reports for a while. Nobody has your interest more close to their heart than you do! Self-managed funds are a bit more costly while they are small, but as what is in them grows they start to save you money, and you keep control.

There is no consensus between the advisors because they are paid a percentage of what you invest, and all have their own favourites based on who gives them the best percentage. Those you pay by the hour, rather than them getting a percentage of your investment, may be more balanced.

[devilsadvocate]

Well work this out:
Banks were already applying a premium of 55 basis points to the official cash rate.
The Reserve Bank cuts the official rate by 100 basis points.
The banks pass on a cut of 80 basis points - keeping a further 20 basis points to add to their (existing) 55 basis points margin!
They now have a margin of 75 basis points above the official cash rate, so banks have actually increased their interest rates and cleverly disguised it amongst the hype of the RBA's big announcement!
Unless my calculations are flawed that is....

Cue, Dutchy.....

I have no problems with the banks doing this. They're in business and the goal in business is to make a profit.
We don't have to buy a big house with a huge mortgage that we can't afford.

As I've said, the biggest problem for banks is securing funds they can the on-sell to us lot for a profit. These funds are more expensive than they have been previously. Plus with the banks keeping a bit more margin for themselves, creates a buffer against them going under, which again is something I'm totally happy with.

We don't want to go down the bank failure path. Just ask anyone in the outer suburbs of just about any US city. Plus I'm sure people on here would remember the State Bank!

[devilsadvocate]

It just goes to show that the non-competitive banking sector continues to hurt the average Australian.

I reckon the US and UK situation with their banks is hurting consumers even more...give me our current set up anyday

Well said.
Our banking sector is NOT non-competitive. It's very well regulated and still allows building funds etc to operate in niche markets.

You don't have to take out a monster mortgage. You are allowed to rent or live in a more modest home.

[devilsadvocate]

I'm not fussed about paying a little extra on my mortgage, 'cos I own shares in each of the major Aussie banks.
Swings and roundabouts I guess...

Looking at the performance of the managed funds over the last 20 years my advice to anyone would be to spend the money to set up your own self-managed superannuation fund as soon as you can and just keep dropping in as much as you can afford. It can start as just a moderately high interest banking account in the fund's name. Then talk to various advisors, but notice that they all try to shunt you in different directions, and then make your own choices based on what you have learned after you have been watching the financial pages and reports for a while. Nobody has your interest more close to their heart than you do! Self-managed funds are a bit more costly while they are small, but as what is in them grows they start to save you money, and you keep control.

There is no consensus between the advisors because they are paid a percentage of what you invest, and all have their own favourites based on who gives them the best percentage. Those you pay by the hour, rather than them getting a percentage of your investment, may be more balanced.

Good advice - investment advisors look after themselves 1st, their richest clients 2nd, then (if you're poor like me) us muppets last.

One of the best books I've ever read in relation to investing is called 'Intelligent Investor' by Benjamin Graham. Outstanding.

[Squawk]

DA - a "monster" mortgage is all relative though. A $200k house for a minimum wage family brings a mortgage that is stretching in the same way as a bigger mortgage for those with more income.

If only the Govt set up it's own bank again and offered loans at a standard margin against the official rate, we would all be laughing. Taxpayers borrow from the taxpayer then and the money earned goes back to the taxpayer!

[devilsadvocate]

DA - a "monster" mortgage is all relative though. A $200k house for a minimum wage family brings a mortgage that is stretching in the same way as a bigger mortgage for those with more income.

If only the Govt set up it's own bank again and offered loans at a standard margin against the official rate, we would all be laughing. Taxpayers borrow from the taxpayer then and the money earned goes back to the taxpayer!

Don't they already do that with Homestart?

I know what you mean though mate. I guess my frustration is more at the unscrupulous brokers who meet with homebuyers (especially younger generation) and procedd to offer them an $800k homeloan. My wife and I went to the bank a couple of years back knowing exactly what we wanted (a modest amount) having done our sums and with a big deposit. The numbnuts then tried to convince us to take out an $800k loan. Why on God's earth would we want to do that? It's a worry that some people do it. We would have been working till we were 80 paying 35% of gross income. No room for kids, holidays, anything. Just dumb, dumb, dumb of the bank.

The power and threat of compound interest should be drummed into EVERYONE at every year level of school

[Psyber]

DA - a "monster" mortgage is all relative though. A $200k house for a minimum wage family brings a mortgage that is stretching in the same way as a bigger mortgage for those with more income.

If only the Govt set up it's own bank again and offered loans at a standard margin against the official rate, we would all be laughing. Taxpayers borrow from the taxpayer then and the money earned goes back to the taxpayer!

Superficially it seems like a fair idea, but by the time they pay several public service bureaucrats standard bank executive and CEO's salaries ['cos "you've got to be competitive to get he best people in the public service" they claim] then staff it like the public service, the taxpayer may be taking a steady loss - unless of course they then jack the margin to balance the budget - but they wouldn't do that would they? And, of course, the wealthy people who take the big loans and pay lots of interest would deal with a private bank anyway to avoid the bureaucracy.

The ANZ gave me a large mortgage in late 2003 at a time when I hadn't lodged a tax return for two years and had no current income figures, based on my past form with them.
I could imagine trying that with the bureaucrats.