RBA Cuts Rates to 2.00%

Historically Low Rates

Just as the scuttlebutt around the markets predicted, the RBA cut interest rates yet again. At 2%, it's never been this low in the time the Reserve Bank has existed. More over, they did so even with the threat of real estate prices in Sydney going even more ballistic. It's pretty much as the IMF suggested, and really hen you look at it, it's still quite high compared to the other countries running their ZIRP, especially if the Reserve Bank of Australia likes to move in 0.25% increments. We have 8 increments to zero, and 6 to the 0.5% being offered in the USA. It's enough to still encourage wary internationals to buy our bonds.

Of course, as I've discussed before, low interest forms a very difficult frame around what exactly we're seeing as our economic future. The collapse in interest rates in advanced countries has gone hand in hand with the collapse of the future horizon, where it's unclear where the next spurt of growth is going to come. The fevered investor activity in real estate happens exactly because the investors cannot see the future-industry-to-come beyond the mining boom, they're rushing to lock up their spoils in real estate in the hopes of squeezing rents for their cashflow.

Added to the fact that speculative activity increases as money supply becomes easier, and you have exactly the scenario where there's too much money chasing too few assets. There is inflation going on in the markets, but interestingly enough, we're being dragged towards ZIRP all of our own down under precisely because the RBA doesn't want to pop the bubble and create a stampede for the door.  The problem is, the RBA has to either wear a preternaturally high Australian Dollar, or wear a property bubble. It's already at the point where the RBA is finding it hard to raise interest rates, so the question that looms is just when are we going to get down to ZIRP? Because the rates really appear unlikely to go up any time soon. In fact going up would act like a margin call and suddenly all these happy home loans will become distressed. It would cause a shitstorm. Besides which, given the weight of globalised capital markets, the only way forward is no cuts or more cuts.

And what the hell is Sydney going to look like when interest rates hit even 1.00%, let alone a number starting with zero? It's going to be really wild.

What's really strange is that politicians of this land seem perfectly okay with all of this.