Posted Monday, 05 December 2011 at 12:40 by Shape Home Loans
Tagged: interest rates
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We believe Rates will NOT drop tomorrow.
1. With all the negative talk about a 2nd GFC - it would cause too much panic with 2 rate cuts in a row; given it remained steady for 11 consecutive month ( at the peak of some of the European crisis as well)
2. A cut now will do more Harm then gain; retails are pushing for a cut to "increase" x mas shopping budget- but a 0.25% cut will not increase sales it will make people hold on to the cash for longer and to see " how low can this go?? When is it a good time to Jump in and invest?”
3. Fix rates- This ties back to Point 2. Fix rate is 1.5% lower then the Standard variable, and still at 5.99% fix for 2-3 years...a 0.25% drop will have little impact. With all the GFC talk in the media banks and mortgage holders are looking at the Fix rate market more closely (and their Funding source are different! not influenced as much by the RBA)
4. Inflation 3.5% – relatively high for RBA standard’s but when broken down to it’s raw form, you can see for the sept Quarter the majority contributors to the increase is electricity (7.8%) , Rents (1.2%) and water/sewerage (8.6%) the things that are part of everyday NEEDS.
5. RBA decision to cut will depends how it pans out with the European crisis; if they want to improve consumers sentiment RBA would need to pass on a larger cut % and on a more frequent basis- rather then in small drips of 0.25%. RBA has been known to drop rates following major world events (1997, 2003, 2007 GFC) and this has always been an effective strategy.