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Should the RBA follow the market's interest rate cut pricing?

Further official cash rate cuts are possible if a global Coronavirus COVID-19 pandemic develops and is sustained for longer and substantially hurts the economy.

 

The market’s 0.25% rate cut pricing (reflected in the below interest rate yield curve as at 29 February 2020) and expected on Tuesday, 3 March 2020, includes any negative impact on the economy from the Coronavirus and the stock market’s fall.

 

Last week’s stock market fall is just a blip in the overall performance of the stock market over the last few years and a correction was overdue.

 

Would a 0.2% or even a 0.4% hit in the March 2020 quarter GDP be enough for the Reserve Bank to cut interest rates further when property prices are skyrocketing at the fastest monthly, quarterly and annual rate ever?

 

The market is betting on certainty that the Reserve Bank will cut interest rates on Tuesday, 3 March 2020. Unlike other certainties, a bolter may come to spoil the party like Dandy Andy, the horse best remembered for upsetting the billed match between the immortals Vo Rouge and Bonecrusher in the 1988 Australian Cup.

 

It is considered prudent for the Reserve Bank to patiently wait and act as appropriate.

Feb 29th, 2020
Official Cash Rate & Future Direction of Interest Rates – December 2019

What is the Yield Curve implying?   The below graph plots the Implied Forward Interest Rate yield curve (blue line) which is derived from the Interest Rate Swap yield curve (red line) as at 31 December 2019. Any changes to today's yield curve will also change the implied...

What your great grandparents paid for their home and home loan interest rate

Not often you will find graphs that show what your great grandparents paid for their house and what their home loan interest rate was at the time. Now you do. Owner Occupied Variable Home Loan Interest Rates since 1959.   Sydney Median House Prices since 1979 (Author QED Realty)...

Official Cash Rate & Future Direction of Interest Rates – October 2019

What is the Yield Curve implying?   The below graph plots the Implied Forward Interest Rate yield curve (blue line) which is derived from the Interest Rate Swap yield curve (red line) as at 29 October 2019. Any changes to today's yield curve will also change the implied f...

3 year fixed versus variable comparison August 2019

You have heard it before, many, many times before (so we shall keep it short) from brokers to branch lending experts to the media - applying for a home loan requires making many decisions ... most borrowers struggle with the decision to fix or not to fix ... banks always win when you fix your home l...

Official Cash Rate & Future Direction of Interest Rates – April 2019

The below graph plots the Implied Forward Interest Rate yield curve (blue line), and the Interest Rate Swap yield curve (red line).   The yield curve is interpreted as follows – (i) Short Term (less than 6 months) – the Reserve Bank to cut the official interest ra...

Is the Multi-Decade Bond Bull Market Over?

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Official Cash Rate & Future Direction of Interest Rates – December 2016

The Reserve Bank decided to leave the Official Cash Rate unchanged at 1.50% on 6 December, 2016.   Why did some lenders increased variable interest rates the day before the Reserve Bank board meeting? This is what the lenders have said. There is a need to regularly review interest r...

Official Cash Rate & Future Direction of Interest Rates – August 2016

The Reserve Bank reduced the Official Cash Rate from 1.75% to 1.50% on 2 August 2016. Is the multi-decade bond bull market over? The 3 decade long bull bond market seems likely to be almost over because – 1. First, quantitative easing, bond purchases and negative interest rates are in...

Implied 3 Month Forward Interest Rates

What does the Interest Rate Swap Yield Curve Imply? What is a Yield Curve? The yield curve shows the relationship between yield and the term to maturity, at any given point in time. It provides important information on what the wholesale market’s expectations are on monetary policy, e...