RBA Interest Rate Cut? - Are You Kidding Me?
Nope, not kidding, just look at the recent situation in/around Australia:
There is little doubt that the Australian real estate boom is over. Both Melbourne and Sydney markets are already on the decline. The volume builders are throwing deals on the table, which is a sure sign that they are experiencing declining order books and are trying to fill the void.
If you look at the RBA history, we find that it has left the interest rate unchanged at 1.5% since September 2016, i.e. for over 27 months, one of the longest periods of no change, in history.
Another great pointer is the RBA Rate Indicator.
The boffins that put together this monthly rolling forward expectation for the next month interest rate change of the RBA are actually forecasting decreases! Now, the timing is still anyone's guess.
And while we are fossicking around at the RBA data, indulge yourself and take note of the ASX 30 Day Interbank Cash Rate Futures Implied Yield Curve (is that a mouthful or what…?)
Again and quite clearly, the ASX is expecting interest rates to go DOWN, by as much as about 30 basis points by around May 2020, check it out yourself here:
Now, let’s look a bit further afield, shall we?
Look around at the current economic situation and moreover expectation for the future in Australia and you will find a sentiment of uncertainty, caution and even fear. Retail is declining, nothing new, but even the growth in online shopping is slowing.
Australians are actually reducing their credit card debt, a good sign, but in our view also a sign that people are preparing for worse times. Hey, Australians are even starting to save. If that ain’t a sign that people are thinking there may be difficult times ahead, I don’t know what is.
And let’s spin the yarn even further; let’s check out the Forward View globally. There are a dozen or so reports out there, pretty much all of them are in agreement, there is not only a slowdown happening as we speak, making matters worse, there is an expectation for it to continue.
Lastly, look at the deals the Australian financial institutions are offering for the 3-5 year fixed interest rates – there is blood in the streets! When you can get 3-5 year money for about the same interest rate as the current variable rate, that ought to tell you something.
So the question is “ how much can a Koala bear” (pun intended)? There is little doubt in our mind, that interest rate cuts are coming, the only question is when…
This will obviously be influenced by how things are developing, both in Australia as well as globally.
For what it’s worth, our bet is on 25 basis points around October/November 2019.
The real question is how much of that will filter through to stimulate the slowing market – but then again the poor banks need to bolster their profits a bit – don’t they?