“australian Interest Rate Decisions: Capitalizing On Central Bank Moves For Profit”

“australian Interest Rate Decisions: Capitalizing On Central Bank Moves For Profit” – Homeowners can rejoice as they have been given a brief reprieve after the central bank cut interest rates for the first time in nearly a year.

On Tuesday at 2.30pm, the RBA revealed that interest rates would remain unchanged for the time being.

“australian Interest Rate Decisions: Capitalizing On Central Bank Moves For Profit”

Homeowners have been given a brief reprieve following 10 months of consecutive interest rate hikes since last May, adding to their mortgage differential by tens of thousands of dollars.

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Even with the pause, it is Australia’s fastest cycle on record, with an increase of 350 basis points delivered in less than a year.

The RBA’s tight strategy has reduced inflation rates, according to an ABS report released two weeks ago, explaining the pause.

In March, the ABS released its monthly report which found that inflation had moderated somewhat.

The current inflation rate is 6.8 percent for the 12 months to February, the lowest since January’s 7.4 percent inflation rate.

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Speaking of the decision in a statement, RBA Governor Philip Lowe said they had decided to keep the rate “unchanged” because they recognized the impact of the “slowdown” as the economy played to follow the central bank’s policies.

“The Board recognizes that monetary policy is operating on a downward spiral and that the full impact of this significant increase in interest rates is yet to be seen,” he wrote.

“The Board took the decision to keep interest rates on hold this month to provide additional time to assess the impact of interest rate increases to date and the economic outlook.”

Mr Lowe also acknowledged the banking crisis taking place overseas, which has seen three US banks collapse and a Swiss bank taken over by a competitor.

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“The recent problems of the banking system in the United States and Switzerland have caused instability in financial markets and a reassessment of the outlook for global interest rates,” he explained.

“These problems are also expected to lead to difficult financial conditions, which will be an additional challenge to the global economy.

“Australia’s banking system is strong, well capitalized and very liquid. It is good to provide the loans that the economy needs.”

Experts and economists were divided on the decision on Tuesday afternoon, with some wrongly suggesting a 25 basis point increase.

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Homeowners across the country have been feeling the pinch since last May. Photo: NCA Wire / Gaye Gerard

It is welcome for home owners after being hit by rising prices, with the cash rate the only way for Australia’s central bank to try to control inflation.

The Commonwealth Bank of Australia and Westpac both predicted a freeze, while NAB and ANZ thought a rise was more likely.

AMP chief economist Shane Oliver also predicted a pause on Tuesday, writing on Monday “The larger than expected fall in February’s CPI provides further evidence that inflation has peaked and is now easing”.

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He said the tight tightening cycle has reduced retail sales and has also made business conditions difficult. The global banking crisis also made it necessary to hold off on rate hikes to prevent further tightening, he wrote.

The Reserve Bank of Australia has vowed to stop inflation at all costs. Photo: NCA wire /Gaye Gerard.

“The suspension will feel like a reduction in sentiment in the market, which is dangerous,” he told.

“Since the Reserve Bank is operating under a ‘little regret policy’ and given that the full impact of higher interest rates is yet to be seen, the RBA is standing by to allow more time to properly assess how economic conditions are developing,” he said. .

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“It is expected that consumer spending will decline sharply as the full impact of higher interest rates increases.” There are fears that “contagion” will spread after the collapse of the US central bank – and could affect interest rates in Australia.

Silicon Valley Bank (SVB) was destroyed on Friday. It was the second largest bank failure in recent US history and there is fear of “contagion” spreading around the world.

But there is a sense of panic among mortgage lenders and financial markets are now betting strongly that the Reserve Bank of Australia (RBA) will keep interest rates on hold.

Three-year yields are now nearing their lowest since October and ten-year yields have also fallen below the RBA’s cash rate.

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Money markets are also signaling that investors believe the RBA will suspend further interest rates, with the probability of a pause now at 74 percent.

SVB had a market capitalization of about $40 billion, making it about a fifth smaller than Australia’s ANZ Bank, and had total assets of more than $300 billion.

However, it closed its doors on Friday after the California state government and the US federal government stepped in after fears that its problems could spread to the rest of the banking sector.

Betashares chief economist David Bassanese said that unlike in Australia, failure among the thousands of small US banks is not uncommon.

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But SVB was the 16th largest in America and marked the biggest bank failure since the 2008 global financial crisis.

“At heart, the SVB used a regulatory contract for small banks that did not require allocating capital for any “mark-to-market” paper losses. of these paper losses first,” he said.

“Thus, while the deposit’s initial decline – due to growing financial problems among its major technology industry depositors – forced it to sell some assets and incur losses, other uninsured depositors also in the technology industry were affected and a bank run followed.”

“Regulators could provide some relief by funding uninsured depositors who need more money more quickly. Accordingly, this looks more like a liquidity issue than a solution to many in the domestic or US tech industry, so the absence of potential the older one seems to be difficult,” he said.

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“Will this be enough? Unless there is a blanket guarantee for all uninsured American depositors in small banks, this may still not be enough to prevent another bank run and a larger contagion.

However, problems are already brewing as US regulators shut down another bank on Monday – New York-based Signature Bank, which is widely used by the cryptocurrency industry.

On Friday Australian time, California-based Silvergate Capital also announced it had entered voluntary liquidation, after posting a $1 billion (A$1.5 billion) loss in the previous quarter, with its shares down by 67 percent.

A pedestrian talks on a cell phone as he walks past the Silicon Valley Bank headquarters in Santa Clara, California on March 10, 2023. Photo: NOAH BERGER / AFP)

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But in the US, with the “genie out of the bottle”, Mr Bassanese said the issue “will not be resolved quickly” implying that the US Federal Reserve will need to push interest rates higher again.

The US Federal Reserve has already raised interest rates faster and higher than Australia in an effort to slow the economy to between 4.5 percent and 4.75 percent, the highest rate since September 2007.

“Depending on the negative results in the next few days, moreover, the turmoil will be enough to prompt the RBA to pause at the April meeting as well,” he predicted.

Economists are also hedging their bets that the Reserve Bank of Australia will have to halt rising interest rates – which have come from a record low of 0.1 per cent to 3.6 per cent since last May.

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The Alphabeta building, where the offices of Silicon Valley Bank UK (SVB) are located, is seen in London on March 12, 2023. Photo: Justin Tallis / AFP

Jobs data is expected to be released on Thursday, which is expected to reveal that 50,000 people gained work in February, but if the results are softer it could increase the RBA’s chances of ending the pain it is currently inflicting on homeowners.

RBA governor Philip Lowe said data on inflation, jobs, business sentiment and consumer spending would influence the board’s decision on whether to raise rates for the 11th time in a row.

Westpac chief economist Bill Evans said the outlook was “uncertain” and if there was a significant increase in employment without a rebound in the unemployment rate than that could prompt the RBA to push for a pause.

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NAB economist Taylor Nugent said he expected 60,000 jobs to be added to the Australian economy and the unemployment rate to drop to 3.6 percent.

But CBA chief economist Belinda Allen predicts only a 45,000 increase in jobs and the unemployment rate to remain at 3.7 percent. Journalists in the editorial team at The Australian Advisor base their research and opinions on objective, independent information gathering.

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