Posted to The Age (30/8/2018) on 30/8/2018
Commenting on “Westpac signals the ending of ultra cheap homeloans”
https://www.theage.com.au/business/banking-and-finance/westpac-signals-the-end-of-ultra-cheap-homeloans-20180830-p500nc.html
The Reserved Bank of Australia (RBA) has been sending the wrong signals for the past 20 months to first home buyers and interest-only mortgagees, by keeping the cash rate unchanged.
Low interest rate is a double whammy. Let's isolate the bond market and overseas sucking our capital, but work on simple logic only. Banks require depositors to put money in the banks so that the money can be loaned to borrowers used for whatever purposes.
Low interest rate does not attract cash depositors. It turns them to invest in other forms of investments such as shares and superannuation. As for first home buyers or property investors, instead of saving towards a larger deposit, which attracts close to no return, they take the gamble to borrow and invest while the interest charge is low. This throws the supply-and-demand of money out of whack - rise in demand of money by investors, but fall in deposits.
Many baby-boomers are rich in cash, but they are reluctant to spend because they do not earn any interest to keep their principal topped up. The fear of having all their money spent before they hit the grave puts a brake to their spending and therefore the consumer economy is not growing, just as predicted.
Despite many horrible things people talk about President Trump, he manages to creates a positive wave in the US economy. RBA did not take any preemptive measures to counteract the rise in US interest rates, resulting in offshore bond market sucking capital from Australia.
If the last Treasurer, now the Prime Minister, and Reserved Bank's Philip Lowe did not warn borrowers earlier about the likely rate rise by the banks, will the borrowers pay any attention to Peter Costello?
RBA keeping the cash rate low for so long is not a wise move!
Thank you for reading.
Commenting on “Westpac signals the ending of ultra cheap homeloans”
https://www.theage.com.au/business/banking-and-finance/westpac-signals-the-end-of-ultra-cheap-homeloans-20180830-p500nc.html
The Reserved Bank of Australia (RBA) has been sending the wrong signals for the past 20 months to first home buyers and interest-only mortgagees, by keeping the cash rate unchanged.
Low interest rate is a double whammy. Let's isolate the bond market and overseas sucking our capital, but work on simple logic only. Banks require depositors to put money in the banks so that the money can be loaned to borrowers used for whatever purposes.
Low interest rate does not attract cash depositors. It turns them to invest in other forms of investments such as shares and superannuation. As for first home buyers or property investors, instead of saving towards a larger deposit, which attracts close to no return, they take the gamble to borrow and invest while the interest charge is low. This throws the supply-and-demand of money out of whack - rise in demand of money by investors, but fall in deposits.
Many baby-boomers are rich in cash, but they are reluctant to spend because they do not earn any interest to keep their principal topped up. The fear of having all their money spent before they hit the grave puts a brake to their spending and therefore the consumer economy is not growing, just as predicted.
Despite many horrible things people talk about President Trump, he manages to creates a positive wave in the US economy. RBA did not take any preemptive measures to counteract the rise in US interest rates, resulting in offshore bond market sucking capital from Australia.
If the last Treasurer, now the Prime Minister, and Reserved Bank's Philip Lowe did not warn borrowers earlier about the likely rate rise by the banks, will the borrowers pay any attention to Peter Costello?
RBA keeping the cash rate low for so long is not a wise move!
Thank you for reading.
