We are almost daily bombarded with calls for the RBA to lower rates yet again.
I suspect most of these calls - and the prevailing sentiment created by them -  are coming from sectional interests. They may be based on honest beliefs that this would be good for the economy and the country generally but whether this is true or not is up for discussion.

The basis of the calls is that a further lowering of rates would give a boost to growth. But would it?
We have seen rates in Europe dropped to near as dammit to zero without any great effect on most economies. It might be said that the same action in the USA has seen an upturn in the economy, but has that been due to this or other factors.
The US has had a massive boost to the economy in the past few years from the shale oil & gas boom. It has also been impacted by money printing on a grand scale, which they now prefer to call quantative easing. And also the US banking system is quite different to Europe or Australia, much more diversified and decentralised.

I don't know what the economists say in general . . .what they're paid to I suppose. But it seems to me there would be an "elasticity effect" with interest rate movements. When our rates came down from around 17% to say 10 or 12, I've no doubt that had an accelerator effect through the economy.
But a drop of .025% from an already low 2.5% (?), would that really stimulate anything?
It may give a marginal boost to the stock market and the housing market, but it would be marginal. So marginal that you would be hard put to measure it or even be sure any movement was due to that or something else. It wouldn't put much more discretionary income in the hands of the Little Aussie Mortgagor than a cup of coffee. (and they really should be getting that from an Aldi coffee machine anyway)

All in all, I think a further cut in the rate would be whistling in the wind or doing something else in the wind.

But you may disagree and I won't be at all surprised or upset.

bogarde73 wrote on Apr 16^th, 2015 at 10:47am:

We are almost daily bombarded with calls for the RBA to lower rates yet again. I suspect most of these calls - and the prevailing sentiment created by them -  are coming from sectional interests. They may be based on honest beliefs that this would be good for the economy and the country generally but whether this is true or not is up for discussion. The basis of the calls is that a further lowering of rates would give a boost to growth. But would it? We have seen rates in Europe dropped to near as dammit to zero without any great effect on most economies. It might be said that the same action in the USA has seen an upturn in the economy, but has that been due to this or other factors. The US has had a massive boost to the economy in the past few years from the shale oil & gas boom. It has also been impacted by money printing on a grand scale, which they now prefer to call quantative easing. And also the US banking system is quite different to Europe or Australia, much more diversified and decentralised. I don't know what the economists say in general . . .what they're paid to I suppose. But it seems to me there would be an "elasticity effect" with interest rate movements. When our rates came down from around 17% to say 10 or 12, I've no doubt that had an accelerator effect through the economy. But a drop of .025% from an already low 2.5% (?), would that really stimulate anything? It may give a marginal boost to the stock market and the housing market, but it would be marginal. So marginal that you would be hard put to measure it or even be sure any movement was due to that or something else. It wouldn't put much more discretionary income in the hands of the Little Aussie Mortgagor than a cup of coffee. (and they really should be getting that from an Aldi coffee machine anyway) All in all, I think a further cut in the rate would be whistling in the wind or doing something else in the wind. But you may disagree and I won't be at all surprised or upset.

Well Bogi, "normally" the lowering or raising of interest rates would spark a reaction of some sort, even a smallish one.

That said -
1) The Euro rates dropped from around 4% to around 1% in 08/09 and after a brief/small rise, the Euro rates have since Declined to effectively be at zero for the last couple of years and even after some 7 years of effectively lowering rates, the Euro Economy is still struggling & has not bounced back, as it normally would have, well before now!
http://www.tradingeconomics.com/euro-area/interest-rate

2) The USA rates dropped from 4.25% to 0.25% in 2008 and the US rates have remain there since, effectively at zero and even after some 7 years of low rates, the US Economy is still struggling & has not bounced back, as it normally would have, well before now!
In fact, just released figures have showed US Industrial production fell a seasonally adjusted 0.6% in March and despite some ups & downs (some real & some not), the US Economy is definitely not reacting as "normal"!
http://www.marketwatch.com/story/industrial-production-slumps-06-in-march-2015-04-15
 
3) The Japanese rates dropped from 6% in 90/91 to 0.2% in 1995 and despite some brief ups & downs, the Japanese rates have hovered effectively around zero for the last 20 years and despite accumulating mountains of Debt to spur their Economy back to Growth, the Japanese Economy is still struggling now!
That is extremely unusual!
http://www.tradingeconomics.com/japan/interest-rate

So, whilst "normally" lower rates would provide a bounce, it seems very clear from other major markets that "what is Driving Economics now is not normal" and that any further lowering of rates in OZ, will NOT provide the Economic Bounce that the "Economic Experts" often refer to. In fact, it may drive Economic Growth lower, than it otherwise would have gone to!

Finally, just so that everyone knows, an Expert is best described as -
Ex (a former) spurt (a drip under pressure)
And Yes, we do have "a few Economic ExSpurts out there!
I'm sure FD will concur, with that assessment?   

So do you agree with the idea of their being an "elasticity effect" or, if you like, a "propensity to stimulate" with interest rates:
- the smaller the movement, the less likely to have an effect
- the closer to zero, the less likely to have an effect

And do you think this pressure for a rate cut is being promoted by sectional interests, such as the banks & the housing industry.

And just to add to that, what worries me is that reducing the rate here further would have the adverse effects of:
- having no ammunition left in a crisis
- forcing the dollar down from where it is, which I regard as an optimum bottom.

bogarde73 wrote on Apr 16^th, 2015 at 12:13pm:

So do you agree with the idea of their being an "elasticity effect" or, if you like, a "propensity to stimulate" with interest rates: - the smaller the movement, the less likely to have an effect - the closer to zero, the less likely to have an effect And do you think this pressure for a rate cut is being promoted by sectional interests, such as the banks & the housing industry.

Yes, Yes & Yes!

Also, as can be seen from the following, the banks have something to answer for!
But, so to, do both major Political Parties!


perceptions_now wrote on Apr 15^th, 2015 at 8:45pm:

In 1990, the RBA Cash Rate was as high as 17.50%. http://www.rba.gov.au/statistics/cash-rate/cash-rate-1990-1996.html In 1990, the Credit Card Rates, were around 20-21%. http://publications.gc.ca/Collection-R/LoPBdP/MR/mr105-e.htm In 2015, the current RBA Cash Rate is 2.25%. http://www.rba.gov.au/statistics/cash-rate/cash-rate-2008-2015.html In 2015, Credit Card Rates are still around 20%! So, THE BIG QUESTION IS, WHY HAVE CREDIT CARD RATES REMAINED ABOUT THE SAME, WHILST THE RBA CASH RATE HAS DROPPED SOME 15.25, OVER THE LAST 15 YEARS? AND, WHY HAVE BOTH THE LIBERALS & LABOR REMAINED SILENT, OVER THIS ISSUE?

bogarde73 wrote on Apr 16^th, 2015 at 12:19pm:

And just to add to that, what worries me is that reducing the rate here further would have the adverse effects of: - having no ammunition left in a crisis - forcing the dollar down from where it is, which I regard as an optimum bottom.

Yes, having a lack of ammunition left is a problem, as is already evident elsewhere!
No, I don't believe the OZ$ needed to be lowered, that's a tactic used by others and it hasn't worked!

perceptions, you will have noticed the spate of news items in the last couple of days, prompted by various interests, ramping up the pressure for a rate cut. It's relentless and the RBA will unfortunately cave in.

bogarde73 wrote on Apr 23^rd, 2015 at 10:13am:

perceptions, you will have noticed the spate of news items in the last couple of days, prompted by various interests, ramping up the pressure for a rate cut. It's relentless and the RBA will unfortunately cave in.

Not necessarily!
But, you are correct, in saying there is "some" pressure, from various "interest groups"!

I should say, IF THE INTEREST GROUPS WIN & THE RBA LOWERS RATES, THEN IT WILL ADVERSELY AFFECT THE OZ ECONOMY, EVEN MORE THAN WOULD OTHERWISE HAVE HAPPENED!

bogarde73 wrote on Apr 16^th, 2015 at 12:13pm:

So do you agree with the idea of their being an "elasticity effect" or, if you like, a "propensity to stimulate" with interest rates: - the smaller the movement, the less likely to have an effect - the closer to zero, the less likely to have an effect And do you think this pressure for a rate cut is being promoted by sectional interests, such as the banks & the housing industry.

I agree.
I also think that our economy has changed and that near zero interest rates don't promote growth. They may actually hinder it.
For one thing any savings made on lower interest rates seem to be used towards ever spiraling higher house prices. Existing mortgage holders just use the interest rate reduction to pay down some of their massive debt. Either way it doesn't contribute towards growth.

On the other hand you have a growing pool of retirees living off their retirement savings. Reductions in interest rates reduce their disposable income so it actually reduces economic activity.