RBA: Reserve bank keeps rate cuts in reserve

The Reserve Bank of Australia [RBA] in keeping rates on hold this week, with plenty in reserve to continue further easing of monetary policy if and when required.

Interest rate easing and effect lag 

The effects of interest rate reductions can take several months to filter through to a measurable response in the economy of Australia, and this in fact has shown to to true in this cycle of rate reductions.

Leaving Interest rates as is

The RBA Governor, Glenn Stevens, said "It was prudent to leave the cash rate unchanged, but, that there was scope to continue the easing cycle if it was necessary to support demand.

House Building approvals and retail spending are up

Building approvals, consumer confidence and retail spending are improving and retailers have told the RBA that yet to be released spending figures for February would be encouraging.

71,500 new jobs created in February

The RBA is taking the latest employment figures showing 71,500 new jobs were created in February into account.
Whilst its too early too early to tell whether the job market has lifted, that has to be a good number for Australia's Labor Government as well as. Among the triggers that could make the bank cut rates again are a rise in unemployment as the resources investment boom slows, and a further rise in the Australian dollar.

Housing market good news for Home Buyers and Homeowners

Current economic data is now showing improvements in consumer sentiment and retail spending, and buoyancy in the housing market with rising home values and improved sales. This has to give confidence for home buyers and homeowners thinking of selling or moving up.

RBA: Australian Mortgage rates on hold

The Reverse Bank of Australia has just decided in its monthly meeting to keep the official cash rate at 3%.

The RBA in its monthly meeting has decided, as predicted by most financial experts, to keep the interest rates steady for the time being.

The reasons have been muted as low unemployment, and stellar rise in new jobs of over 70,000 new jobs in February, and signs that property prices and home sales are on the rise.

Many were predicting that another .5% in interest rate reductions could be used in the latter half of the year, if needed. Many now say that this may not be required as the economy is great shape.
In fact some are now suggesting that the next rate move may be up!

RBA feels its moves on lower interest rates have started to take effect.

Interest rates will soon fall says Westpac

According to Westpac the Reserve Bank of Australia is getting ready to cut interest rates. That has to be good news for home buyers, homeowners and housing construction industry. But will it happen in October?

Westpac is Australia's second largest home loan lender, and the biggest winner in mortgage growth in recent years since the GFC. It believes the RBA will start cutting interest rates at its next meeting. Many other experts says lower interest rates are on the way, but after October.

The prophet of profits bank

Westpac, has a good track record in predicting the timing of RBA rate cuts. After all it has a big stake in the outcomes. Westpac believes that reigning in the value of the high Australian dollar would help Australian businesses, especially those that are not in the mining sector.

It would also be shot in the arm for the ailing house building industry, and that is a big employer

ANZ predicts a brace of interest rate cuts, in October next month and in November!

The RBA was close to cutting interest rates in its September meeting, but wanted more data on the economy due later in September . And things are suddenly unraveling for Australia with global economic conditions going south, the drop in commodity prices hurting Australia, and the low inflation all mean the bank could cut the base interest rate at its October 2 meeting.

All in all, a mortgage rate cut of 0.5% before Christmas is looming as a real possibility. Source: Mr Mortgage Mortgage information

Mortgage Interest Rates: Why the RBA is leaning toward a rate cut in Oct 2

Will the RBA Backflip to Lower Interest Rates?

In September the RBA saw no reason to change interest rates.
Now two weeks later the financial experts are saying that the Reserve Bank of Australia is preparing the markets for cuts to interest rates? It apparently won't need to see the inflation figures due in November to make the move. Obviously there are things that the RBA board members didn't see as important then, that have now emerged.

Suddenly the RBA signalled its new bias towards an easing on October 2 in a statement released by its governor, Glenn Stevens, after yesterday's board meeting in Sydney

How things have changed since August.

It was just in August that optimism ruled the RBA's statements on the World Economy. In particular that China's growth appeared to have stopped slowing. yesterday's updated assessments of international conditions is now more subdued. 

Australian Banks are lowering their mortgage rates independent of the Reserve Banks

Just weeks ago the Big Four banks were not passing on the RBA rate reductions.
Now the CBA has about faced and  lowered its fixed rates by up to .4%. What's that all about? First they say they can't afford it, then drop their pants weeks later?

When the big banks broke ranks with the RBA on interest rate reductions, they broke the pact with the RBA to support the Banks. That is a dangerous move and the banks seem to be thinking that through.

Europe's economy is still going backwards

Anyone that thinks that Europe has fixed its problems with Greece, Spain and Portugal isn't thinking straight. It will be 5 to 10 years before these problems have been ironed out.

Growth in the US was ordinary

The US economy is still in a hole. Its climbing out of a creator left by Bush's scatter brained bunch. What if the Party that caused that hole gets back into power again in November. Another disaster looms large in my view. 

Obama promised blue skies, and then discovered the economy was trashed by years of Republican actions. 

Clearly Obama should have been straight with the people once he discovered the Gravity of the mess he found. He should have told the US that they had an eight year hole to fill. Then the Republicans blocked his efforts at job creation. And now people belief that the Republicans can fix things? We have the same problem in Australia. A hostile opposition party trying to hold Australia back. 

The biggest problem I see for the  US is  property prices increasing and then mortgage rates increasing, and then the Republicans getting the population to work for less money. Either way, home prices in the US are down for years.

China had uncertainty about near-term growth

China has so many areas it can grow in, but right now they don't know which way to go, and even their Premier says the economy is disorganised. When it gets it's act together the growth will continue. 

The RBA is very concerned the big falls in "some coal and iron ore prices of importance to Australia, are not being reflected in the Price of the Australian Dollar

This is the dilemma that we face. The Australian Dollar is overpriced at its current value, given these in massive falls resources prices. But when those prices fell, the Australian dollar held up. That need to change.

It seems that the Australian Dollar is too attractive in an uncertain World, and paying good interest rates compare to other Countries. 

So if the RBA wants to shake this inertia, it might be thinking more than one reduction to get the momentum for a lower dollar in motion.  An Australian Dollar at 90 Cents US would make our economy so much better.

Food Security a hot topic, but not on the RBA radar?

One thing the RBA has not mentioned is Australia's bumper wheat crop in a hungry World.
Food security could be a factor just when Australian wheat growers are having a bumper crop, and major wheat producers like Russia, the US and Canada are having poor crop harvests.
So Australian Farmers are expecting a once in 20 year win on the grain prices, just at the very time that World Leaders are stating that Food Security is the future concern.
So Australia gets lucky again!

Miners pull back on projects

Lesser factors are the pull back of mining projects. Clearly, if all the projects talked about came on stream, there would be to many projects and no enough skilled people to handle them. And many Australians don't want to import workers for the purpose of bringing these projects forward.

Fortescue Metals Group became the first big resources company to scale back an investment program [funny about that] until prices recovered. Whilst the RBA has to consider the announcement as factual, you have to wonder at their real motive in this.

As the Prime Minister has said
"This is a boom with three distinct phases: a prices boom, which is now passing, an investment boom - still to reach its peak - and a production boom for the years and decades ahead."

Will Australia's inflation stay low with the carbon tax?

Economists have said that Australia's inflation rate is unlikely to climb above 3 per cent for the next one to two years, even with the Carbon tax effect added.
The RBA may well ignore the carbon tax inflationary effect, so that even a 3.5% inflation rate could be seen as within its comfort band.
The one thing that has not been looked at is the inflationary effect of a World wheat shortage on grocery prices. Wheat is just about everything that is in a packet these days.

Summary on Mortgage rates

The RBA seems to have gone from "no need" to reduce interest rates, to being concerned about the US, Chins, Europe, Asia and the sudden drop in commodity prices, whilst the dollar hangs too high. It clearly sees that the Dollar has to be forced to come down hard.
At the same time the CBA has reduced deeply its fixed rates interest on many home loans. A give away that it sees mortgage rates heading lower, and that competition in the mortgage market is heating up on thin home loan sales.

Home loan views sourced by Mr Mortgage

Mortgage Home Loan Rates May Fall In October

Some experts are now saying that the Reserve Bank might be edging toward a rate cut in October. But its too early to tell from here

The other thing you have to question these days is "who said interest rates will fall in October and why they said it." 

There are a lot of self interested groups out there spreading baseless rumours about everything these days, from job cuts, asylum seekers, interest rate cuts, the value of the Australian dollar, and about the Gillard Government Leadership. And for what purpose, other than sell gloom and negativity? 

Well, apparently gloom and doom sells papers.

Is Australia's Right Wing Media trying to bring down an Elected Government?

This is a valid question. Its pretty obvious that many that work for Rupert Murdcoh seem to hate the fact that the Gillard Government is doing so well, and actually trying to make out that its not as good as it the numbers say. But the caravan rolls on, and things just keep on getting better for Australia. Despite their unfair and essentially untrue attacks.

Its gotten so bad, that I have refused to buy Newscorp's Australian newspapers anymore. Fairfax is still balance it its editorials in my view.

And the free community papers go straight in the bin. 

So if you advertise with these right wing papers, you need to realise that people with non political views, or centre or left of centre views are being turned off your ads. 

Its interesting that Newscorp profits fell last year. 

Well I hope they keep on falling till they turn to losses that kill the papers that publish this spew, and pay these journos that produce it.

The RBA says enough is enough.

And its not just me that is seeing this bias and negativity by the Murdcoh papers.

The right wing media's relentless negativity is being drowned out in the Financial arena by a constant flow of comments by the RBA, who seems to be crushing a lot of the ring wing media's urban myths.

There used to be a time when you could read a paper, get the facts and make up your own minds. Now all you get is opinions and the facts are rarely given.

Gimme the facts, just the facts. Keep your opinions to yourself.

Today that idea of reporting the facts and letting people form their own opinions has all but gone.

Now the news giants peddle opinions. 

Opinions that are best for them and their self interest in my view, not in the interest of teh public. So now we have the media supporting opinions biased towards one political party. Sure they can pull out any fact and statistic and make it sound that the Government is doing a lousey job and things would be so much better if Mr Abbott and the Coalition were in power.

But the fly in the ointment is that when the Coalition were in power, they had better conditions, but they  performed worse by any standard, and lowered our services.

The RBA is telling people how it is, and it all good. Maybe too good.

Australians required confidence and composure from the crap that was coming from the right wing media.
This section is constantly talking down the economy and the achievements of the Labor Governments of Rudd and Gillard.
So the RBA Governor's hand was forced. He started to let people know how good things were travelling.
Did the right wing spruikers react? Boy did they? They started to slag the RBA Governor, started to say he should not be making public statements. Who says? They do. They were in charge of public opinion apparently.
Was the Government complaining? Of course not.

The comparisons are damning for the Liberals.

The liberals had the reins of the economy in the good times. The numbers are all sour for the Howard Government.
Employment, inflation, wages, productivity, and the value of the dollar were all worse under Howard. So why do the media think they are any good at running the Country? Believing their own spin? Wanting to believe?
Anyone can balance a budget by cutting spending in schools and hospitals and make companies more profitable in the short term by cutting wages. Anybody. There is no secret, No magic. But does that work long term? I believe not. design and innovation mean you get to the future first, and that is where the money is.
Industrial relations to the Liberals means lowering wages and conditions, and now sacking Public servants to balance to balance the books.
But if you want to build a competitive Nation that pays high wages, then that is a challenge.
Its means you have to get smarter, leaner and more innovative. All failures of the Liberals who's claim to fame is cost cutting and scaring the sh-t out of stupid people with regard to asylum seekers.
Australia is in a great position and we don't need lower wages and working conditions to make our way in the World.
We don't have to be mean and miserable to asylum seekers to protect our borders.
We need to take more Asylum seekers and have less failed States.
We need more of the Gillard Government.
For the second consecutive month we have seen declines in the jobless rate in August to just 5.14 per cent. That is during the barrage of gloom and doom spewing out of the Opposition and their media mates.
Can you imagine how good things will be if they media got behind the Government?
Where we need improvements.
The biggest room in the World is the room for improvement. We need improvements in the home construction industry, the building materials sectors and retailing needs a boost.
Both could be improved with an upswing in housing construction, as new homes means new needs to fit out and furnish those homes.
How we do that without causing land price inflation is the thing that the Gillard Government needs to work on next.
We have to learn to life with high wages and a high dollar value. That what success means to most.
Nobody in Australia wants Australians to have what the Greeks have.
The Australian Economy is far from Perfect. But in my view we have to give credit where credit is due. The gIllard Government continues to improve despite a hostile press.
If you advertise with News Ltd and you agree with this, Why not complain to the editor.

PS. I got a call from NewsPoll [I believe a NewsCorp Company 2 nights ago] The caller claimed he was "calling from NewsPoll, on behalf of the Government ". Since when does NewsPoll call and do surveys on behalf of the Government? Are they now telling outright  lies?
Mr Mortgage

Australia's Housing Shortage: Is it just an urban myth?

I have been accepting as "fact" for 8 years that Australia has a housing shortage. But what if that was not the case. Would you still buy a home? Is that the question?
Investment Banker Mortgage Stanley recently released research that pointed to Australia actually having a glut of housing, rather than the much touted housing shortage we have all heard about that keeps growing like an evil magic pudding.
Admittedly, I have heard about this housing shortage since 2003 and wondered where all the tent cities were being erected in Australia to justify these claims.
Maybe we will see fake one's sprouting up all over Australia soon?

Housing Shortage, Fact or Myth:Australia goes from an estimated 228,000 housing shortfall to a 341,000 home glut in the time it takes to produce a report!

So how did we get this 569,000 housing turnaround in weeks?

There has to be a reason that house prices have not collapsed in the wake of the GFC.

The estimated 228,000-home shortfall, cited by everyone from the construction industry to economists at the major banks as evidence for why prices remain so high, may, in fact, be an excess of 341,000 homes, according to Morgan Stanley.

Whether the new figures are accurate will only become clear in time, as house prices either level off because real estate is scarce, or prices fall and attract more scrutiny about the fundamentals of the market.
But what if there are other reasons why home prices are staying high in the gloom. Here's a few.

1. Real estate is worth what someone else will pay you for it. People have not been willing to pay what many buyers want, but...
2. Real estate is also worth what you are prepared to let it go for if you are selling. When people have not been able to sell at the price they want or even need, they are hanging on to it.
3. If you have a job you can afford the mortgage till things come good. In Australia's case the job market never went bad, so people can hang onto property for longer.
4. If you hang onto to the old property, then real estate agents are not going to be happy, because you don't effect your sale, and you therefore can't buy the next home. This is exactly what is happening.
5. People are now hanging on to their homes longer and their mortgages longer.
6. From a generational point of view, people are living longer and staying in their homes for longer. And the Government assists this with carers and other services to help people stay out of nursing homes longer.

But the all-important nature of house price movements underscores a bigger issue: we simply don't know what impact elevated property prices have on other aspects of the economy because we don't have a long history of clean, robust and comparable data to rely on.
But I will give it a try here.

1. When you pay too much for a home, you have to hang onto it for longer or risk going underwater.
2. When you pay too much, your mortgage is bigger than it should be. That makes banks happy and rich and that means that you pay more of your income in mortgage repayments than you should be, for the next 30 years. That causes a thing called mortgage stress. As these things have happened then we can say people have paid too much for their homes in the recent past.
3. Are they still paying too much? That will be clear in 2 years time. If prices go down, then yes they are still paying too much today.

In Australia, there is no clear, undisputed authority of information in this area crucial to the economy.

In the US, the S and P Case-Schiller index, which measures changes in prices of the same properties over time, and that is only 25 years old. So where do investment gurus pull 100 year figures from?
The problem I have with any long range figures is that they only rate the homes that are still standing,and over 100 years maybe more than half the housing stock may be demolished. SO counting just the best ones that are left is a hardly a way to determine the appreciation of housing generally. Its taking a generalisation and making it specific. But what about the home that was bought, and later demolished. Surely its worthless. When these homes are included in the overall picture, actual returns are lower.

In Australia, Residex's repeat sales index goes back to 1991, in the middle of a Sydney house price correction on 17% pa interest rates just before the two-decade run-up in house prices began.

One thing for certain is that it is unwise to expect the "boom conditions" to persist indefinitely. That is a interesting term. I thought the boom finished in 2003 and we got ripples in 2006, and last hurrah in 2010?

In 2010, Reserve Bank governor Glenn Stevens appeared on breakfast TV to warn viewers it was a mistake to ''assume a riskless, easy, and guaranteed way to prosperity is just to leverage property''.
That advise I was giving out from 2005, but nobody wanted to listen back then. That's why home prices went too high. Are they still too high. Well RBA Governor Stevens says no, they are not.

Source; Mr Mortgage

Credit card fees: Excessive surcharges to be banned

The Reserve Bank of Australia is urging business owners and operators to get ready for the ban on excessive credit card fees, to come into effect in January 2013

Taxis, Restaurants, Tourism and e-tailers are the worst offenders of credit card excessive charges

A Reserve Bank of Australia ruling to limit credit card surcharges to a "reasonable cost of card acceptance" will come into force on January 1st 2013.
The RBA had noted a large rise in the number of businesses levying card charges, with taxis, restaurants, tourism operators and e-tailers among the worst offenders.
The RBA says large businesses are the most common surchargers, but the proportion of small businesses that charge for card use has grown from about 4 per cent in 2005 to 25 per cent today.

The National Australia bank already working with Business Owners

NAB's David Gall says business owners will need to speak with their bankers. "Businesses that accept cards need to know what the cost of accepting cards is and the reasonable cost of surcharging," he says.
Processing costs can vary dramatically but are typically between 0.5 per cent and 2 per cent of the transaction cost.
NAB has introduced a more transparent credit card billing approach for its 120,000 business customers and Gall says it has been well received.

 "Merchants now receive a monthly breakdown of the fees charged by card issuers, allowing them to understand exactly how their monthly bill is made up" he says. The RBA will accept submissions about its surcharge plans before Friday. 

 It has received concerns that some businesses are using credit card surcharges to slug customers,rather than recoup the cost of accepting cards.

Other people's low interest money. The scourge that destroyed the US and the European economies.

Is the RBA right on the money with interest rates?

A lot of the Australian media is pushing the story that  interest rates are too high. But is the RBA on the money on this one?

Everybody seems to have a fixation and an opinion on interest rates these days, and you would think that lower interest rates would fix everyone's problems the way the media is attacking the RBA [Reserve Bank of Australia] these days.

But there are a growing number of people who actually want higher interest rates, especially the self funded retirees that gravitate to savings deposits. For them the higher the interest rates, the better.

The fact is that the RBA has two primary functions it uses interest rates. 

1. To contain inflation. And that band has been set at the Goldilocks rate between 25 and 2.8%. Higher or lower it acts.
2. To keep unemployment low.

On the basis that these two factors have been delivered, how could anyone argue against the RBA settings on rates?

Why low interest rates have destroyed the World Economy

let's keep this simple so anyone can understand it. 

What is the Euro, the US and even Australia's greatest problem? 

People have spent too much on over priced assets. Now they pay with higher interest rates and falling asset values. They are caught holding the problem. In Europe those interest rates are going to be sky high.

What made them do that?
They had cheap money thrown at then and they could not resist it.

What we are seeing now is two things.

1. The consequences of that spending binge, as people struggle under that debt and interest rates as their assets deflate.
2. Vested interest insiders pumping up and then deflating the markets with rumours of fixes and ruin, to give them the margins to profit of both rises and declines in values of shares.

The result is that people are constantly bombarded with false information that is repeated in the news. That fact is that a depression is spreading over Europe, and Governments have to force people into lower home values and suffering with lower expectations, or revert to their own currencies and deflate that value of their currencies, and so the value of assets by using the markets. And that means the break up of the Euro.

That's why Britain was wise to realise that it had to retain the Pound, and keep that possibily open to them.

The nonsense we here about interest rates.

What are people saying we need to do? Lower interest rates. Why? So people can suck up more debt, and buy over priced homes, and get retailing at the dizzy heights it was when people were spending like there was no tomorrow? They must be kidding.

If or China slows buying are minerals, we will have to deflate the value of our assets, so isn't it better not to add fuel to the fire now? BUt we have no control over that because we don't control the Euro, or the Chinese domestic economy or the US economy.

The Euro issues, and how it affects us.

There is also a lot of bellyaching about the Euro and how it affects us. The rise of the prophets of doom, headed by their "poster boy" Tony Abbott. Although I am sensing a turn in believing he is a contender for leading the Nation.

What caused the change?

We see great numbers on Australia's economy, so even though interest rates are lowered, the AU$ is rising.

Everyone is waking up to the fact that the Euro problems have been around for four years or more. And they won't go away in the next four years. In fact they won't go away in my view till the Euro is disbanded, or Europe becomes one political power, and that latter won't happen.

Australia will never have that problem because we have a floating Currencies and are the masters of our destiny. Keeping interest rates high is the solution to the problem, not the problem.

What is the connection to low interest rates and the Euro problem?

Its about Nations spending too much of other peoples' money because it was cheap. That created an illusion of being wealthy when you are not.
What does lower interest rates do. Make people want to spend other people's money. The cause of the problem in the first place.

My advice on interest rates to joe public. 

• Cut up your credit card. If you can't pay cash, you don't need it.
• If you don't have the money, don't buy it. 
• If you see a car ad with a 2.9% interest rate, keep walking! that's why we got into this pickle in the first place.

Yes I have said that the interest rates were set too high, and should be lower, faster.

But was I right? The figures on the economy have vindicated the RBA and proved me wrong.

Will we see more easing in interest rates. 

We probably will see lower interest rates, but hopefully that will not rise house prices, because they are already too high.

• Low interest rates and easy money caused the problem we now have.
• Lower interest rates will not fix it.

To those that link the Australian economy to the Titanic, I say this.

The iceberg was low interest rates and easy money. That is not the solution to a stronger Australian Economy.
The answer is people saving more, and spending less, so we don't have to borrow money from Europe to meet lending demand.

Interest rates will go lower, but don't let that make you spender too much on your next home. We happy with less. Less home, less gadgets, less debt, less junk, less mortgage.
Source: Mr Mortgage

Mortgage repayments: Why NSW has nearly half of Australia's home loan battlers

According to a Moody's latest investment report, New South Wales has 44 per cent of Australia's entire home loan delinquencies, and mortgagors in Sydney's fringe suburbs are most likely to lose their homes through mortgage stress.

Most of those are in Sydney's outer regions where more about 2.5 per cent of mortgages are more than 30 days behind in repayments, a Moody's Investors Service report said.

Australia's mortgage market is generally performing well, but not as well as four years ago

Australia's mortgage market has always performed well, with just a National figure of about 1.3 percent of mortgages in default due to slow mortgage repayments.
This figure is about ten times better than the US experience over the past two years, but is not as good as it was four years ago.

So why is Sydney having suburbs with double the National average?

1.  Overvalued house prices. Show me struggling homeowners and I'll show you overvalued homes. Many home buyers have paid too much for their homes and will suffer the most.
2. Commuting expenses. When you are in the outer suburbs you will be travelling longer to get to work, and that means high transport, car and petrol expenses, so you have less to spend on your mortgage. Rising petrol prices have not helped.
3. Starting families too early. Having kids is expensive and it means that many partners choose to stay home to care for their children. Starting a family may have been unplanned or seemed affordable two years a go with record low interest rates and the baby bonus. But the baby bonus doesn't go far and the the mortgage keeps rising. You cannot make mortgage repayment and feed a family on one income these days, so both partners need to be income earners.

The RBA tipped to raise interest rates

The troubles may be in front of those now struggling to meet mortgage commitments as the RBA is widely tipped to raise mortgage interest rates by up to 1.25% over the next twelve months and the Major banks looking to raise rates over this figure.
Softening house prices in these suburbs will not assist mortgage stressed homeowners to sell their way out of debt, so people behind in mortgage repayments will have to learn to tighten their belts over the next few years.

Mr Mortgage Advice. If you are struggling with mortgage repayments now, I suggest that you switch to a non bank mortgage lender with lower mortgage interest rates, and maybe a discounted one year mortgage rate to help you through the next twelve months. The major banks want to raise rates in addition to any Reserve Bank rate increases, so your need to out of that scenario now.

Australia's Mortgage rates to stay on hold? IMF says it should!

IMF say to Reserve Bank of Australia leave interest rates till European debt situation is clear.

Mr Mortgage has been saying for months that interest rates should not rise till after the new year when the World Economy has played out [amongst many other reasons]. This last fewweeks everyone and his dog has been saying rates will rise in October. We have been asking why should rates rise at all this year?
Countless other so-called experts, as reported in all the media, have been saying a rise is on for October. Many Bank economists have switched to the October rate rise will happen theory.
With the financial markets now betting on a mortgage rise, and all  the big banks trying to talk up a rate rise because they will make a killing on the currency markets, the pressure is on the RBA. When rates do rise the Big banks can then slip in their own mortgage rate rises on top of the RBA's  and hope their customers don't notice. But there are too many families in Australia that will suffer mortgage stress if rates do Increase.
The major banks are using mortgage interest rates as milking cows for record profits.

This is the biggest beat up I have seen since the Iraq War WMD.

Why the RBA will leave official rates on hold.

1. European Debt crisis should hold off interest rates raises till into next year.
2. The RBA enjoy second guessing the financial markets who seek to profit on their decisions. They are Independent and like to remind the markets of this.

The IMF agrees with Mr Mortgage on the absence of reason to raise rates.

Well the IMF now agrees with Mr Mortgage, and says a bust may be closer than anyone expects, with a risk that the sovereign debt crisis in Europe may again throw world financial markets into turmoil. This is the second recession that many having been saying could happen. In other words, the US recovery is a "dead cat bounce".Where is the job growth, the housing market recovery, and the shoppers in the US picture? Was the US stimulus too small to work? And will the US Fed go negative with Interest rates? And if they do will the $AU dollar be overpriced?

IMF advises RBA to hold off on lifting Mortgage rates

The IMF advised the Reserve Bank of Australia to hold off lifting interest rates. "The Reserve Bank has scope to wait for the outlook to become clearer," the fund said. There is no impending disaster to happen if it leaves rates as is.
The RBA board is meeting next Tuesday and was widely  tipped to increase rates from the current 4.5 per cent to 4.75%.
But as many people know, the Reserve Bank of Australia's Governor and Board likes to foil currency gamblers who try to second guess Board decisions. The RBAwins when currency traders lose.
In any case a resulting higher dollar is bad for Australia in many ways, as it hurts exporters, farmers and tourism in Australia.
Expect to see the dollar crash in value in the coming days, as the bets on an interest rate rise are switched.
Author: Mr Mortgage

ANZ leads the charge of the bank brigade in mortgage interest rate increase

Was it their turn to go first? No one is saying, but the ANZ lead the other three major banks in increasing their variable mortgage home loan rates by a quarter of a percent after the Reserve Bank raised the cash rate by a similar amount.

ANZ was the first of the major banks to move in late morning, the National Australia Bank following by mid afternoon, and the Commonwealth Bank and Westpac by days end.

All four banks are raising their variable mortgage home loan rate by the same amount of the official rate rise of quarter of one percent, that was announced by the RBA this week.

These same banks had recently stated that they will raise rates even without RBA official increases so I guess we should be grateful the rises were not higher.

In my view we need more competition in the Australian mortgage market. But instead we have less as most of the big non bank mortgage lenders are being gobbled up by the banks in the wake of Global Financial Crisis.

Author: Rick Adlam, Mr Mortgage

Credit is off the boil in credit cards to business investment

AUstralian consumers and businesses are reducing their debts for the first time since the last recession, but questions are being raised about whether it is voluntary or enforced by lenders imposing stricter conditions.
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Other figures released yesterday by the banking watchdog, the Australian Prudential Regulation Authority, and analysed by CommSec showed banks with foreign parent companies such as HSBC, Barclays and ING reduced loans and advances to Australian firms and households in December. All of the big Australian banks, excluding NAB, increased theirs.
The chief economist at Morgan Stanley, Gerard Minack, said the figures showed the credit crunch was beginning to be felt domestically. "More to the point, it will likely get significantly worse. Reduced credit flows is part of the reason I expect a severe recession in Australia.
In particular, tight credit points to a major fall in business investment over the next 18 months."
The credit figures are another sign of a slowing economy, which is expected to convince the Reserve to opt for a 1percentage point interest rate cut at its first meeting of the year next Tuesday.
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."

Greedy banks raise credit card rates as official cash rate falls

Australian banks are accused of being greedy and taking advantage of the financial crisis and the Rudd Government' s shop message, as they slide up the credit card interest rate by up to 2% as official cash rate falls by a similar amount.

Research has revealed at least five card providers increased their interest rates in the past three months, even though the RBA has slashed the cash rate by 2 per cent since September.
According to financial data company Infochoice, GE Money and Wizard Home Loans had both increased credit card rates by 2 per cent or more since September, when the RBA began its series of rate cuts.
Bank of Queensland, Citigroup and Suncorp had also increased rates on some cards by up to 0.84 per cent.
Crucially, not a single credit card provider passed on the entire two percentage points of official cash-rate cuts announced since September.
Commentators said banks should be put under more pressure to ensure that interest-rate cuts are applied across the range of financial products, so the economy gets as much stimulus as possible.
So far the Federal Government has given away $10.4 billion in a massive financial giveaway, and the RBA has cut rates aggressively, yet part of the benefit of these measures is being wiped out by banks, which are keeping the savings for themselves.
"By not passing on the rate cuts, card companies are doing nothing to alleviate the debt burdens on Australian households so are limiting the effectiveness of monetary policy,'' TD Securities senior analyst Josh Williamson said.
"It could be banks are robbing Peter to pay Paul - using money from credit cards to help subsidise cuts to their mortgage rates.''
With the average credit card rate at just under 20 per cent, borrowers paying over the odds should switch as soon as possible - preferably to a zero per cent deal which will help them pay off the capital quickly.

Reserve Bank of Australia to cut mortgage rates again in time for Christmas

The Reserve Bank of Australia's board will be cutting mortgage interest rates deep again for Xmas
Governor Glenn Stevens said board should consider up to a 75 basis point to a 1.0 percent rate reduction.
The board decided to cut rates by 75 basis points, taking official rates to 5.25 per cent, in light of the continuing poor conditions in financial markets, the significant deterioration in the global outlook and the likelihood of inflation falling.
"Given the changing balance of risks, there was an advantage in moving the setting of monetary policy quickly to a neutral setting," the RBA said in its board minutes.
Economists said they expected the RBA to move to an “expansionary setting” next month as it tried to shield the economy from the global financial crisis which has already dragged several countries into recession.
Commsec economist Savanth Sebastian, who expects a 50 basis point cut next month, said: “The move to a neutral monetary policy setting has been achieved quickly. However the case for further substantial rate cuts remains.
“The global economy continues to weaken and a stimulatory monetary policy setting will be required to combat the weakness in retail spending and housing.”
Westpac chief economist Bill Evans said the RBA’s desire to move quickly to a neutral cash rate suggested a cut of at least 75 basis points in December.
“Whereas neutral may have been around 5.5 per cent in previous cycles, we assess that it is now around 4.5 per cent, given the incomplete pass-through of RBA rates to household and business borrowing rates,” said Mr Evans.
“A decision to push rates to neutral or below as quickly as possible seems prudent in the current circumstances.”
Financial markets price a near-certain bet of a further 100 basis point cut at the RBA’s December 3 meeting. A cut of that magnitude would reduce official rates to 4.25 per cent, the lowest level since the aftermath of the September 2001 terrorist attacks.
ANZ economist Riki Polygenis, who expects a 50 basis point cut next month, said: “The use of the word neutral in reference to taking the cash rate to 5.25 per cent is the largest clue contained in the minutes regarding the outlook for monetary policy.
“On the RBA's latest forecasts, there is a clear case for monetary policy to move to an expansionary setting.”
The minutes revealed board members believed recent reductions in borrowing costs, the weakening Australian dollar and the federal Government's $10.4 billion stimulus package were insufficient to shield the economy from the global financial crisis.
“The marked deterioration in global financial conditions over the past couple of months ... was likely to have a significant effect on business and consumer sentiment,” the minutes said.
“This would probably lead to a significant curtailment of planned investment spending and caution on the part of households.
“Members agreed that a further sizeable reduction in official rates ... would enable a further meaningful reduction in rates paid by borrowers and could assist confidence among consumers and businesses.”
While inflation remained above the central bank's target range of 2-3 per cent, the sharper than expected slowdown in domestic and global growth along with lower commodity prices would see inflation to start to fall soon.
As such, the board members decided a “further size-able reduction ... would strike the right balance between the need to return inflation to the target and the need to reduce the risk of an unduly sharp weakening of demand”.
The RBA has become increasingly bearish about the outlook for Australia.In its November monetary policy statement last week, the central bank cuts its forecast for growth in fiscal 2009 to1.5 per cent from an August forecast of 2.0 per cent.
The projections undercut the IMF’s forecast for 1.8 per cent growth and the federal Government’s prediction of 2.0 per cent growth.
The domestic economy has been slowing along with the rest of the world, with several major economies now in recession.
The euro-zone, Japan and Britain have officially entered recession and many economists already believe the United States has slid into recession.
A meeting of the Group of 20 industrialised and developing countries in Washington at the weekend, which was attended by Prime Minister Kevin Rudd, pledged to work together to restore economic growth.
Leaders vowed to improve supervision of financial markets and reform the IMF and World Bank.
They also urged governments to inject more money into their economies and lower interest rates to stimulate growth.

Mortgage rate increase more likely due to consumer price rises

A Mortgage interest rate rise next week is looking all the more certain after consumer prices rose at their fastest pace in almost a year, possibly due in part to the government's tax cuts.
The TD Securities-Melbourne Institute monthly inflation gauge, which indicates the likely pace of official inflation, rose 0.6 per cent in July to its highest rate since August 2006.
The result followed an increase of 0.2 per cent in June and took the annual pace of inflation to 3 per cent - at the top of the Reserve Bank of Australia's (RBA) annual inflation target of 2 to 3 per cent.
Core inflation also was higher, with the measure excluding volatile items rising 0.7 per cent in July for an annual pace of 3.8 per cent.
TD Securities senior strategist Joshua Williamson said the rise in consumer prices coincided with the government's latest tax cuts, which started on July 1.
"There is some suspicion that prices were pushed higher as firms took advantage of more favourable consumer finances," Mr Williamson said.
He said the acceleration in inflation in July should lock in an interest rate rise on Wednesday. Most economists expect interest rates to rise 25 basis points to 6.50 per cent.
"The RBA has kept interest rates on hold so far in 2007, but with economic growth strong and the labour market tight, the inflation pick up needs to be nipped in the bud for the inflation credibility of the RBA to be maintained," Mr Williamson said.
"Any further acceleration in inflation in the months ahead would increase the risk of yet a further rate rise in late 2007."
Consumer prices rose in a record 45 expenditure classes, fell in 10 classes and remained unchanged in 35 for a net balance of 35 price rises in July, the inflation gauge showed.
The biggest contributors to inflation during the month were increases in the prices of fruit and vegetables, bread and cereal products, and alcohol and tobacco.
The rises were partially offset by falls in the prices of automotive fuel, telecommunications, and audio, visual and computing equipment.
The July inflation gauge follows a stronger than expected rise in official inflation in the June quarter.
Source: AAP