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The future of interest rates in Australia?? Discussion

Discussion in 'The Economy' started by Peza, 9th Sep, 2010.

  1. Peza

    Peza Member

    18th Aug, 2009
    Parramatta, NSW
    Hi All,

    Sorry if this may be in the worng thread, but I had to choose somewhere.

    I am just wondering what people's ideas are on the future of interest rates in Australia? In 1 year to 5 years?

    There are so many contradictions on the future of the economy, the stock market, the pending property bubble and of course the chaos in most other economies of Europe, Asia and USA.

    I thought it would be good to hear what we everyday people think and why ?

    My personal view is that interest rates in Australia are pretty high compared to the rest of the world, but justifiable given the way the economy is growing. In short term there may be another movement upwards of 0.25%, however when any one of the factors above are triggered, and the rates will go tumbling down to below GFC rates.

    I hope we can have an open discussion without knocking others views, just accept and validate THEIR views. We are no ‘experts’.

  2. Chris C

    Chris C Well-Known Member

    2nd Apr, 2008
    Brisbane, QLD
    In short, "it depends".

    What's important to realise is that interest rates are reflective of the opportunity cost of lending money. Therefore it's largely inflation or debasement of currency value that is what drives interest rates.

    So as for whether interest rates goes up or down ultimately depends on whether the Australian government and central bank want to properly control inflation or whether they are also interested in competitive devaluation of the currency like the rest of the world seems to be. And even commercial banks have a large role to play in the prospects of overheating or stifling inflation based on their propensity to making credit available or tightening the flow of credit.

    For the time being with Australia's low levels of sovereign debt, it is unlikely that the government or central bank will see it being in the national interest monetise the debt it carries through debasing the currency.

    On the flip side though, the other levels of the Australia economy, ie - individuals, households and businesses are all very highly indebted (many argue unsustainably so). So if there was to be another financial crisis (ie - if there is a CC version 2.0 it will almost certainly be triggered by a sovereign default) then there could be flow on effects of the availability of credit to those levels of society, and if high levels of uncollateralised debt defaults were to ensue then it's completely possible that the losses would invariably be passed onto the government and central bank as highly leveraged lenders failed, much like what happened in the US and Europe, at which point the incentive to devalue the currency becomes prominent (much like the US is beginning to do).

    And through the process of currency debasement, inflationary expectations would set in, and then those loaning cash or credit would invariably demand a higher interest to compensate them for the opportunity cost of their investment in the form or inflation and currency debasement.

    Of course this is just one scenario where government and central banks opt for the easier option of printing money.

    Japan on the other hand has had interests at zero for decades now as they chip away at their debt bubble.

    So I come back to my original point - "it depends".

  3. Beck99

    Beck99 New Member

    20th Sep, 2010
    Hi, I'm jenny. I'm new here. nice to see u.
  4. Billv

    Billv Getting there

    15th Jul, 2007
    Sydney, NSW
    I think they'll stay where they are now +/- max 1%
  5. fundies

    fundies Member

    28th May, 2010
    If the Global economy tanks ( still highly possible ), minus 3%.
    If the economy continues on this "Claytons" strengthening path plus 3 %.