Interest Rates

[Drummer]

Seems to be a topic less discussed here these days.

How do you see the future of the interest rates over the next 1-5 years?

 

[Drummer]

I agree, maybe Brexit will be the trigger.

[scottbeard]

Small rises I guess, but nothing dramatic.  If we go into recession next year as I'd expect, next rise won't be until 2020.

[dougless]

10 minutes ago, scottbeard said:

Small rises I guess, but nothing dramatic.  If we go into recession next year as I'd expect, next rise won't be until 2020.

I think for most people we are already in recession and regarding rate rises, it may well be a decision taken out of the UK's hands.

[crazypabs]

If WTO is the result then the cost of the additional tariffs on goods and services from abroad will fuel inflation by potentially double digit % increases which in turn is usually regulated by increasing interest rates, however being the dovish boe governor we know him to be, I can't help but think Carney will experiment with alternative methods of controlling inflation outside of interest rate increases.

[Drummer]

 

5 minutes ago, crazypabs said:

If WTO is the result then the cost of the additional tariffs on goods and services from abroad will fuel inflation by potentially double digit % increases which in turn is usually regulated by increasing interest rates, however being the dovish boe governor we know him to be, I can't help but think Carney will experiment with alternative methods of controlling inflation outside of interest rate increases.

If inflation did get to say, 10%; what would the problem be with leaving the base rate at 0.75% ?

[happyguy]

26 minutes ago, scottbeard said:

Small rises I guess, but nothing dramatic.  If we go into recession next year as I'd expect, next rise won't be until 2020.

Agree - business and commerce is based on low interest rates now - the days of 9-10% are gone

[Aidan Ap Word]

6 minutes ago, Drummer said:

 

If inflation did get to say, 10%; what would the problem be with leaving the base rate at 0.75% ?

People would continue to borrow (even more) to maintain their lifestyles (because borrowing is so "cheap") which has lasting after effects - not least of which the borrowing represents income from the future brought into today ... so when that income never actually happens it really hurts ...?

More importantly, maybe international investors (for whom the base rate affects their returns to varying degrees) would see their GBP being devalued (ie: not protected from inflation) and sell the pound off ... raising the cost of imports for the local British people and driving up inflation ...

[Orb]

46 minutes ago, Drummer said:

 

If inflation did get to say, 10%; what would the problem be with leaving the base rate at 0.75% ?

That rate would continue to encourage borrowing of cheap money, and more people with money means higher demand for goods. The higher the demand, the rules of capitalism dictate higher prices, and thus inflation continues. But if interest rates rose to say 5%, people would be much less encouraged to borrow, thus less demand, thus deflation (to control inflation). 

[LondonBound]

Ignore the official data which is months late... look at ‘real-time’ data instead..

CEO of Worlday said the other week that he thought the UK was already in recession based on what they see flow across their payments network  people spending less  

JustGiving donations down 8% last quarter. People feeling poorer  

The UK economy is likely already slowing fast. There’s not going to any rate rises soon. 

[Captain Kirk]

1 hour ago, crazypabs said:

If WTO is the result then the cost of the additional tariffs on goods and services from abroad will fuel inflation by potentially double digit % increases which in turn is usually regulated by increasing interest rates, however being the dovish boe governor we know him to be, I can't help but think Carney will experiment with alternative methods of controlling inflation outside of interest rate increases.

We don't have to put tariffs on goods and services from abroad do we?

[Drummer]

Just now, Captain Kirk said:

We don't have to put tariffs on goods and services from abroad do we?

They put it on us when we buy from them.

Low rates are the only thing keeping BTL alive in my opinion. It still makes sense to buy up properties when you can fix for 10yrs at 2.5%. Only need a deposit of 10-25%.

[Captain Kirk]

1 hour ago, Drummer said:

 

If inflation did get to say, 10%; what would the problem be with leaving the base rate at 0.75% ?

It would mean people can't buy as many things.

[Captain Kirk]

3 minutes ago, Drummer said:

They put it on us when we buy from them.

Really? I don't think that is right. Tariffs are on imports not exports. But if I'm wrong then I'd really like to know.

https://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm

Edited December 11, 2018 by Captain Kirk
Added link

[peter_2008]

I think all central banks around the world were originally rather nervous when they slashed IR and flooded the market with printed money 10 years ago. There was a real risk that the market could have reacted Zimbabwe or Venezuela style.

BUT it did not.

So after 10 years, the central banks have grown confident enough that I think they will just keep IR indefinitely low.

[ebull]

Just now, Captain Kirk said:

Really? I don't think that is right. Tariffs are on imports not exports. But if I'm wrong then I'd really like to know.

https://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm

I'm pretty sure that not only are you right but also WTO-tarriff means the MAXIMUM you can charge on imports of specific items from other WTO members.

IOW If WE want to apply 0%, we can unilaterally choose that. Of course if one would be superstate wants to charge tarriffs on our exports whilst the biggest state wants to make a deal which allows us to export, we may choose to charge one lot the maxiumum and another lot zilch because they gave us a bilateral and fair deal.

Of course quite a number of things in the UK may get cheaper since lots of countries can sell stuff much cheaper than the EU will ever be able to due to over regulation and over subsidy of the feckless.

[Captain Kirk]

14 minutes ago, peter_2008 said:

I think all central banks around the world were originally rather nervous when they slashed IR and flooded the market with printed money 10 years ago. There was a real risk that the market could have reacted Zimbabwe or Venezuela style.

BUT it did not.

So after 10 years, the central banks have grown confident enough that I think they will just keep IR indefinitely low.

UK QE to GDP is relatively low at around 25% (I think). I suspect Zimbabwe and Venezuela probably did a lot more. Also, we had austerity (supposedly) hence a reduction in government spending so that the banks could be bailed out. Countries that have hyperinflation print to fund increasing government spending.

[Captain Kirk]

15 minutes ago, ebull said:

I'm pretty sure that not only are you right but also WTO-tarriff means the MAXIMUM you can charge on imports of specific items from other WTO members.

IOW If WE want to apply 0%, we can unilaterally choose that. Of course if one would be superstate wants to charge tarriffs on our exports whilst the biggest state wants to make a deal which allows us to export, we may choose to charge one lot the maxiumum and another lot zilch because they gave us a bilateral and fair deal.

Of course quite a number of things in the UK may get cheaper since lots of countries can sell stuff much cheaper than the EU will ever be able to due to over regulation and over subsidy of the feckless.

I thought that was the case.

[zugzwang]

2 hours ago, peter_2008 said:

I think all central banks around the world were originally rather nervous when they slashed IR and flooded the market with printed money 10 years ago. There was a real risk that the market could have reacted Zimbabwe or Venezuela style.

BUT it did not.

So after 10 years, the central banks have grown confident enough that I think they will just keep IR indefinitely low.

There was never any risk of a hyperinflation from the original QE program since the new money was created entirely as reserves which never left the banking system. Lending reserves to the public was effectively forbidden by the Law of Accounting. The QE cash was used instead to purchase gilts cheaply which were then swapped for the illiquid securities on the commercial banks' lending books, allowing the banks to systematically trade their way out of insolvency. At least in theory. In practice QE proved to be much less successful than had been hoped for. Hence Osborne's decision to engineer an echo housing bubble in 2013.

The situation is more complicated with QE created through the Term Funding Scheme. In exchange for eligible collateral, the TFS allows City institutions (including hedge funds) to borrow reserves directly rather than via asset swaps. Much closer to the concept of helicopter money, albeit with various constraints and a 4 yr repayment term. Highly inflationary in the short-run, dis-inflationary later, as the same money plus interest is removed from the economy and repaid to the Bank. Unless, of course, the Scheme gets a continuous roll over...

[zugzwang]

2 hours ago, ebull said:

I'm pretty sure that not only are you right but also WTO-tarriff means the MAXIMUM you can charge on imports of specific items from other WTO members.

IOW If WE want to apply 0%, we can unilaterally choose that. Of course if one would be superstate wants to charge tarriffs on our exports whilst the biggest state wants to make a deal which allows us to export, we may choose to charge one lot the maxiumum and another lot zilch because they gave us a bilateral and fair deal.

Of course quite a number of things in the UK may get cheaper since lots of countries can sell stuff much cheaper than the EU will ever be able to due to over regulation and over subsidy of the feckless.

Except that many manufactures travel both ways between the UK and the EU, effectively negating that supposed advantage. As for subsidising the feckless? The immigration numbers suggest the converse is true.

Not that there's a snowball's chance of a WTO Brexit. 

[Harry Sacks]

They might have their hand forced if auctions cover falls, depending on how this current shit storm plays out. The Euro could collapse anytime, too.

[nome]

12 hours ago, Drummer said:

 

If inflation did get to say, 10%;....

 ''They'' would still be telling us it's only 2-3%

[Gigantic Purple Slug]

10 hours ago, zugzwang said:

There was never any risk of a hyperinflation from the original QE program since the new money was created entirely as reserves which never left the banking system. Lending reserves to the public was effectively forbidden by the Law of Accounting. The QE cash was used instead to purchase gilts cheaply which were then swapped for the illiquid securities on the commercial banks' lending books, allowing the banks to systematically trade their way out of insolvency. At least in theory. In practice QE proved to be much less successful than had been hoped for. Hence Osborne's decision to engineer an echo housing bubble in 2013.

The situation is more complicated with QE created through the Term Funding Scheme. In exchange for eligible collateral, the TFS allows City institutions (including hedge funds) to borrow reserves directly rather than via asset swaps. Much closer to the concept of helicopter money, albeit with various constraints and a 4 yr repayment term. Highly inflationary in the short-run, dis-inflationary later, as the same money plus interest is removed from the economy and repaid to the Bank. Unless, of course, the Scheme gets a continuous roll over...

I think you can argue the TFS is sector targeted, even though it may officially not be. The inflation caused by it pretty much directly goes into house prices and little else IMO. It's quite interesting to look back at the HPI information and see the takeoff when the TFS was brought in. Now the TFS has finished prices have pretty much flatlined and the market has ground to a halt. I think It will continue on a slow trudge downwards until either there is some major macro action.

I think it would be pretty hard for the BOE to argue that the TFS is anything other than a prop to the housing market. I would love to know what % of the TFS ended up in residential mortgages. My guess is though if you asked you would be told that that isn't the Banks business. It just provides money into the economy and how it is used is for someone else to determine.

[Pop321]

15 hours ago, happyguy said:

Agree - business and commerce is based on low interest rates now - the days of 9-10% are gone

The government and economists agree that low rates are here to stay and will never return. For me that spells a turning point....such certainty for me, always indicates the opposite. 

“The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of a doubt, what is laid before him.”

Or as the film The Big Short neatly translated it.....“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

Rates will rise. And they will fall.

Sentiment, politics, business cycles and absolutely certainty.....all come and go. That’s often how the very successful investors make money....by ensuring they go against what the rest of us believe is certain. 10% rates probably are unlikely over the next 5/10 years but I would not like to guess anything beyond 10 years....including what fuel drives our transport, what our currency is, what a high street looks like and least of all what interest rates are. 

Ps The big short is on BBC2 on Saturday....off topic, but worth a mention.?

Edited December 12, 2018 by Pop321

[No One]

19 hours ago, Drummer said:

Seems to be a topic less discussed here these days.

How do you see the future of the interest rates over the next 1-5 years?

 

I've been keeping an eye on this.

 

The only way is up. Mark Carney said he would have no choice but to raise rates in a no deal brexit to defend the pound.

 

The FED is in a tightening cycle towards 3%

Australia is F***** and will have to raise

BOJ I don't know, maybe they will hold our

ECB Is holding out for the integrity of the union, dont know how long they will put ideology before the euro

 

Canada will raise

 

Other nations will raise as a trend