Aussie interest rates to abate

Used in isolation, the study below tells me to to ponder a couple things;

  1. buy and fix my term deposits and/or
  2. leave borrowings as variable. In other words, don’t lock them in.

When coupled with other observations in government bond yields and deflating commodity prices, it should (already is) lead towards lower inflation and GDP readings…….hence interest rates in the money markets should moderate by a 1% or little more, depending on the maturity you are watching.

For example, the Australian 2 year bond yield may decline from its current 3.58% to around the 1.80% region.

While the 90 day bank bill may ease from 3.47% to 2.40%.

The Reserve Bank of Australia policy changes will come many, many months later, for they are not a leading indicator nor a barometer.

May 25, 2023

by Rob Zdravevski

Why did the RBA cut rates?

Today, Australia’s Reserve Bank (RBA) cut interest rates by 25 basis points down to a new record low of 2.75%.

I believe that central banks always take their interest rate policy too far in either direction

Do you wonder why they make such moves, especially as they near these extremes?

Did the RBA cut rates to…..

  • lower the value of the Australian Dollar (trying to make it competitive versus other currencies)
  • stimulate growth in the economy (if so, how bad is the economy?)
  • to provide relief to borrowers and credit card abusers
  • to help government (funnily as it’s one week before the federal budget)
  • to force “savers” to invest (because now, after inflation, they are really earning negative interest rates)

I’m simply wondering what was their reason beyond their official statement.

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