Building activity slumps in March

April 10, 2010 By Leave a Comment

There was a significant fall in demand in Australia’s construction sector last month, with residential building falling flat after several months of solid growth.

The Performance of Construction Index by the Australian Industry Group and the Housing Industry Association fell 4.1 points to 48.7 in March.

It is now below the key 50-point level that indicates expansion.

Home building activity was muted, while apartment building and engineering construction extended declines from previous months.

However there was some better news in the commercial construction sector which continued to build on the gradual recovery that has been evident since January.

Australian Industry Group spokesman Peter Burn says he is concerned about a big fall in new orders in the house building and apartment sub-sectors.

“That fall comes at a time when there is already a shortage of housing and a growing gap between demand and supply,” he said.

Dr Burn says businesses attributed the decline in housing new orders to the end of the first home buyers’ boost and the five official interest rate increases since October.

A senior economist with the Housing Industry Association, Ben Phillips, says last month’s weakness highlights the fragility of the recovery in the sector.

“The residential construction numbers for houses and apartments confirm a worrying downward trend for the new homes sector,” he said.

“The strength of the nation’s housing recovery is looking shaky.

“Industry hopes for a sustained and necessary recovery are fading under the impact of higher interest rates and continued pressure from credit and land restraints,” Mr Phillips said.

Dr Burn says access to finance re-emerged as a big issue for the construction industry last month.

“The operating environment remained difficult in March, with tight credit conditions, subdued client demand and project delays having adverse impacts on construction companies.”

He says the industry will struggle with the Reserve Bank’s decision this week to raise the cash rate by 25 basis points.

“The further increase in official interest rates announced on Tuesday is likely to dampen activity at a time when new orders are already falling in all of the sub-sectors other than commercial construction,” Dr Burn said.

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , ,

SA didn’t deserve rate rise: Business SA

April 8, 2010 By Leave a Comment

Business SA thinks the Reserve Bank should have waited for more definite signs of economic recovery before raising interest rates again.

The official cash rate has increased by a quarter of a percentage point to 4.25 per cent.

Business SA chief executive Peter Vaughan thinks the rate rise was premature and business and household confidence will suffer as a result.

He says a rise in spending in South Australia last month on events and festivals would have made confidence appear higher than it actually is.

“Until all of that washes through I think it’s not appropriate for the Reserve Bank to raise rates precipitately, because it has the double whammy on affecting both householders as well as reducing the amount of money for expenditure which affects small businesses,” he said.

“We have a situation where we’re using a sledgehammer to crack a nut and that is the property bubble in Melbourne and Sydney and why should South Australians suffer because of that property bubble?”

The Real Estate Institute (REI) says the latest rate rise will not have a great effect on property investment in South Australia.

Greg Troughton from the REI says prospective buyers will feel the pinch as they reassess their budgets but property investment in South Australia rarely goes backwards.

“This will put extra pressure on families that either already own existing homes or are wanting to get into home ownership, there’s no denying that, but at the end of the day property investment is still very very strong in South Australia,” he said.

Filed Under: International News Tagged With: , , , , , ,

What you’ll pay after RBA rate rise

April 7, 2010 By Leave a Comment

Mortgage Repayment Change
$100,000 $716.38 $15.96
$150,000 $1,074.57 $23.95
$200,000 $1,432.75 $31.93
$250,000 $1,790.94 $39.91
$300,000 $2,149.13 $47.89
$350,000 $2,507.32 $55.87
$400,000 $2,865.51 $63.86
$450,000 $3,223.70 $71.84
$500,000 $3,581.88 $79.82

Repayments on an average $300,000 mortgage will increase by $47.89 per month following today’s 25-basis point increase in the cash rate by the Reserve Bank of Australia.

This table assumes retail banks will match the increase, a 25-year standard variable rate loan and an average new interest rate of 7.15 per cent.

Filed Under: International News Tagged With: , , , ,

Only way is up: RBA lifts interest rates again

April 7, 2010 By Leave a Comment

The major lenders have moved quickly to pass on the Reserve Bank’s interest rate rise.

The RBA today followed up on its governor’s warning to homeowners by lifting official interest rates by 0.25 percentage points.

The move takes the official cash rate target to 4.25 per cent, and will move most major banks’ standard variable mortgage rates above 7 per cent.

* What you’ll pay after RBA rate rise
* Track Australian interest rates

The Commonwealth Bank was the first of the major banks to make a move, lifting its standard variable rate on mortgages by 25 basis points to 7.11 per cent.

Westpac, ANZ and the National Australia Bank followed suit, increasing their standard variable home lending rate by 0.25 percentage points.

The 25-basis point rise in interest rates will add about $48 a month to a $300,000 mortgage on a 25-year term.

RBA governor Glenn Stevens said while lenders had generally raised rates a little more than the cash rate, interest rates to most borrowers had been somewhat lower than average.

“The board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average,” Mr Stevens said in a statement.

“Today’s decision is a further step in that process.”

Mr Stevens said credit for housing had been expanding at a solid pace.

“New loan approvals for housing have moderated over recent months as interest rates have risen and the impact of large grants to first-home buyers has tailed off,” he said.

“Nonetheless, at this point the market for established dwellings is still characterised by considerable buoyancy, with prices continuing to increase in the early part of 2010.”

Treasurer Wayne Swan said the rate rise while tough on homeowners, was a consequence of a strengthening economy.

“Rates are still at relatively, historically low levels,” Mr Swan said.

“The Government understands how tough it can be for someone who is a first homeowner.

“We will do everything to ensure that our fiscal settings are right, but what we see today are the consequences of a strengthening economy.

“A strengthening economy is a good thing for the country, but unfortunately with a strong economy we do see rates moving to a more normal level.”

Mr Swan also warned the banks not to increase their interest rates beyond the amount decided upon by the Reserve Bank.

“If any bank did that it would be arrogant in the extreme and not be justified,” he said.

Acting opposition treasury spokesman Andrew Robb says borrowers should blame the Government for the interest rate rise.

“This massive increase in repayments by the average mortgage holder (sic) is a direct result of the Rudd Government’s reckless spending and the waste that’s occurring in much of that reckless spending,” he said.

Rates return to normal

Interest rate strategist at Macquarie, Rory Robertson, said the rate rise was another step in the process of normalising the interest rate structure in Australia.

“The economy is in better shape than anyone dared hope this time last year, so it’s natural that rates should return to the average of the past,” he told Reuters.

“That doesn’t mean average is a stopping point. If the economy continues to grow above trend and unemployment to be below average, then the RBA will quickly shift to a tighter stance.

“We could easily see rates at 6-6.5 per cent by the end of next year.”

Chief economist with the Commonwealth Bank, Michael Blythe, also expects to see rates trending upwards.

“The next step in the normalisation process has come through a bit quicker than we were expecting; we thought they’d wait until May,” he told Reuters.

“The bottom line here is that as the economy normalises so will interest rates, so we’d still expect to see a cash rate of 5 per cent by the end of the year, it’s just what path we take to get there is up in the air.

“It does look like the Reserve Bank is prepared to look through any data weakness with its eye firmly on the broad economic recovery that appears to be under way at the moment.”

This is the fifth hike since October and takes rates to their highest in 14 months.

The Australian dollar firmed a quarter of a US cent after the move.

Warning for homeowners

Last week Mr Stevens used an unprecedented interview on breakfast television to warn homeowners that mortgage rates would keep rising.

“I think it would be not doing anybody any favours to have a prolonged period of very low rates and then hammer them unexpectedly,” he told Channel Seven’s Sunrise program.

“I think it is a mistake to assume that a risk-less, guaranteed way to prosperity is just to be leveraged up into property.”

That helped convince 14 out of 23 economists that interest rates would rise, although the so-called consensus was not nearly as uniform as it usually is.

Filed Under: International News Tagged With: , , ,

Stevens uses ‘God given capabilities’ to steer economy

April 1, 2010 By Leave a Comment

The governor of the Reserve Bank surprised interest rate watchers again by speaking about his Christianity and how it drives his role as a central banker.

Glenn Stevens used a charity breakfast in Sydney this morning to say he was using his god-given talents to do the job of managing the economy.

This week Glenn Stevens has been showing his human side.

Over past few days, Australians have learned he loves flying, playing the guitar, listening to jazz and watching James Bond films.

Mr Stevens is also keen to be known as an ordinary bloke with an unexciting life – something this morning’s organisers had already been warned about just in case they did not know.

“I have to say I think we are all getting very worried about anybody in your position that was excited. We really, we are not looking for too many excitement at that kind of level,” said the Wesley Mission’s Reverend Keith Garner, who hosted the event.

Glenn Stevens did not disappoint, telling the Wesley Mission’s annual Easter breakfast that in these turbulent days, boring is good.

“I am actually Sydney’s most boring individual. My life is fairly straight forward and there is nothing particularly remarkable about me at all and when I am not in the job anymore I will be disappearing, I can assure you,” he said.

However, for now, Glenn Stevens is enjoying a new audience away from the deeply serious world of monetary policy.

This morning, Mr Stevens spoke frankly about his Christianity, how it applies to his high pressure job and also average people who live in the real world.

“Whoever we’ve had here, whatever job they’ve done, whether they were a taxi driver, an office clerk or a manager, I think I’d want to say, how does the Christian faith impact upon your daily life?” asked Reverend Garner.

“I don’t think that is any different for me than it would be for any of them,” Mr Stevens replied.

“I think if you are a Christian, God has given you certain capabilities to do a job, to earn a living and the bible teaches that you should do that as if you were doing it for him, because you are and that is my attitude.”

In an audience of business and community leaders, including the former prime minister John Howard and the ABC’s managing director Mark Scott, Mr Stevens also responded to a direct question about his belief in God.

“I would say that, despite claims to the contrary, there is a God. This is worth checking out and the critical issue people have to deal with is, was Jesus Christ who he claimed to be? If he wasn’t then you can forget about it, and if he wasn’t then I am living in a fool’s world,” Mr Stevens said.

Perhaps those beliefs have helped Mr Stevens along the way – he admits he was not good with numbers as a child, and maths was not his strongest subject.

However, after 30 years at the Reserve Bank, Glenn Stevens seems to have learned a few survival skills.

“You have to keep your own ego in check. You have to focus on the job at hand. Keep your head down. You get a lot of criticism in this role. That is our society, that is the way it is,” he explained.

However, monetary policy is never too far away, and Mr Stevens used the breakfast to warn that while Australia avoided a recession, there was a big challenge in managing the upswing of a booming economy.

“We are back now into a period of expansion, and that is good because very deep recessions leave a long lasting legacy of unemployment and all the things that go with that, so you don’t want to have that,” he said.

“But the point is that to avoid that, you have to try to manage the preceding upswing so that you don’t get into a position of having the deep downturn.”

Although economists were not in this morning’s audience, they were watching every word, and Glenn Stevens comments, while deadpan as usual, are seen an another sign that the Reserve Bank is concerned about the pace of economic recovery, and that interest rates are odds-on to rise when the RBA board meets next week.

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , ,

Upward house prices defy rate rises

April 1, 2010 By Leave a Comment

A leading private index shows house prices have continued their upward march, despite four interest rate increases in the past six months.

The Reserve Bank has, for more than half a year, explicitly expressed its concern about steep increases in home prices.

It has gone as far as hinting that the speed with which it raised interest rates at the end of last year was at least partly due to concerns about the potential for a housing bubble to develop if rates stayed too low too long.

The RP Data – Rismark index, which is watched by the RBA, shows capital city home values increased by 1.4 per cent in February, bringing up gains of 12.7 per cent over the past year.

It also reveals the median national capital city home price (includes houses and apartments) is now $455,000.

RP Data’s research director, Tim Lawless, says he is surprised by how little impact rising interest rates and the removal of government incentives has had on the market so far.

“These are the first two months where we have seen a complete absence of the first home buyers boost, and we’ve also seen four interest rate rises… that haven’t seemed to dampen the market as much as we would’ve expected,” he told ABC News Online.

“I still think going forward for the larger part of 2010 we will see growth rates around Australia moderate, but we certainly haven’t seen any indication of that to date.”

However, Mr Lawless also points out that prices in regional and rural areas have not increased as quickly, climbing by only 7 per cent in the year to February.

House prices changing lifestyles

The index also shows that disposable household incomes have roughly kept pace with increasing home prices over the past five years.

Capital city home prices rose an average of 6.2 per cent per annum over the five years to the end of 2009, while ABS figures show household disposable incomes have increased 6 per cent per annum.

However, Tim Lawless says that is largely because households are working more hours to pay for the increased cost of housing.

“People are, I suppose, combating the affordability situation. We are seeing more people paying the mortgage, so in many cases two incomes per household,” he said.

“We’re also seeing kids staying home a lot longer because it’s very difficult to afford a home as a first home buyer, and it’s also becoming very difficult to rent a home, because there are also rental affordability pressures.”

City by city

The nation’s capital now has the country’s most expensive real estate at a median price of $540,000, while Sydney’s median price was $519,000 (up 3.8 per cent in February).

Hobart had the lowest median home price of $325,000 – it also had the biggest fall in prices during February of 4.2 per cent. Perth was the only other city where prices fell (by 0.2 per cent).

Tim Lawless, says Melbourne continues to have the strongest property market in the country, with prices surging 5.4 per cent in February.

“The results are quite different from city to city. At one of the spectrum, you’ve got a city like Melbourne, where we’ve seen values up nearly 20 per cent [over the past 12 months], at 19.3 per cent,” he said.

“Down the other end of the spectrum we see cities like Perth, Brisbane and Adelaide where value are up much less than 10 per cent over the same timeframe.”

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , ,

Retail sales, building approvals slide

April 1, 2010 By Leave a Comment

There has been a bigger-than-expected fall in Australian retail sales and building approvals during February.

Figures from the Australian Bureau of Statistics show retail sales fell by 1.4 per cent to $19.8 billion during the month, compared to January.

Most economists had expected sales to rise by about 0.3 per cent.

Building approvals figures show a fall of 3.3 per cent to 13,929 dwellings in February compared to January.

The market consensus had been for a rise of 2.1 per cent.

The retail sales data show that, in trend terms, cafes, restaurants and takeaway food services rose 0.4 per cent and department stores posted gains of 0.2 per cent.

Food retailing fell 0.1 per cent and clothing, footwear and personal accessory retailing was down 0.1 per cent.

Australian building approvals were dragged down by another big monthly fall in the apartments and multi-storey dwellings sector, which declined 10.9 per cent.

Approvals for private sector houses fell by 0.9 per cent.

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , ,

Rates to rise, property speculation a ‘mistake’

March 30, 2010 By Leave a Comment

The governor of the Reserve Bank has warned against borrowing too much to buy property, saying interest rates are likely to keep rising this year.

In his first television interview as RBA governor, Glenn Stevens told Australians that investing in bricks and mortar was no longer an easy road to prosperity.

Mr Stevens normally talks to a select group of people, known politely as pointy heads – bankers, economists, politicians, journalists and a grab bag of interest groups.

However, today he found a new audience, telling Channel Seven’s Sunrise program that he is just a regular bloke doing his job.

“I’m Sydney’s most boring person, really,” Mr Stevens said.

“Did you aspire to be Reserve Bank governor?” asked Sunrise host David Koch.

“I joined here after I finished my degree 30 years ago and I thought, well I’ll be here for a few years and then I’ll go on and do something else,” he replied.

“And 30 years later I’m still here.”

Mr Stevens’s first television interview was aimed squarely at a mass audience and designed to demystify the often complex decisions made in the Reserve Bank board room.

Koch was guided through the process of rate decisions, as Mr Stevens reassured viewers that the RBA’s thinking was not simply rubber stamped by the board.

“Does it get pretty feisty around here when you’re discussing, particularly whether to move interest rates, or do they generally take your advice?” Koch asked.

“Feisty isn’t the word I’d use to describe the discussion. It’s very well-mannered, but it’s certainly intense. They’re not here to be a rubber stamp. They’re here to test their arguments and to make sure we’re on the right track,” he said.

Rate rise warning

However, Mr Stevens had a clear message for anyone in middle Australia with a mortgage, especially those who borrowed to the hilt when rates were at their emergency lows.

“I think it would be not doing anybody any favours to have a prolonged period of very low rates and then hammer them unexpectedly,” he said.

“The banks that are lending them the money should be, and I’m sure are, testing the potential borrower: can you handle some rise in interest rates?”

Mr Stevens also signalled that a potential bubble in residential property prices might force rates higher, warning that the traditional investment of bricks and mortar might now be a dangerous course.

“I think it is a mistake to assume that a risk-less, guaranteed way to prosperity is just to be leveraged up into property,” he said.

“It isn’t going to be that easy and I think if we think about property prices as parents, and you’re a parent, as am I. I’ve got kids that within not too many more years are going to want somewhere of their own to live and you wonder, how is that going to be afforded?”

Mr Stevens’s highly targeted comments are a first for a Reserve Bank governor, according to Macquarie Group’s interest rate strategist Rory Robertson.

“I certainly can’t remember a Reserve Bank governor in Australia going on breakfast TV, essentially advertising higher interest rates,” he said.

Mr Robertson says the switch to a commercial television audience is the latest in wider communication by the Reserve Bank, coming after the release of board minutes and statements on rate decisions even when they are left on hold.

“Governor Stevens has really ramped up the communications process since he became governor a couple of years ago. I think that he’s grown into his job and he now, when you see him in public forums both giving speeches and in the question-and-answer sessions, I think he has great presence and is very authoritative in his answers,” he said.

“So I think he would be confident that he can deal with anything thrown at him in any forum these days. I think that’s one of the reasons he’s comfortable enough going on breakfast TV.”

Mr Robertson says this may be part of a greater effort to improve the Reserve Bank’s communication now that interest rate movements are so closely watched.

“I think it is interesting that the Reserve Bank in public speeches over the past week by the governor, by an assistant governor and also in its financial stability review, all those pieces of information were consistent with the Reserve Bank essentially marketing the need for higher rates,” he said.

“So I’ll be surprised if we don’t see the Reserve Bank go another step next month.”

An RBA spokesman says today’s interview was granted as part of the central bank’s 50th anniversary events and that future interviews, while rare, will be considered on a case-by-case basis.

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , , ,

Greek bailout proposal raises central bank’s ire

March 27, 2010 By Leave a Comment

European leaders have hammered out a controversial deal that could see the International Monetary Fund involved in any Greek bailout.

The proposed IMF involvement is a victory for the German chancellor Angela Merkel who had opposed any direct financial aid from her own government.

However, the agreement has sparked tensions with the president of the powerful European Central Bank. He warns that even talk of an IMF rescue is a bad precedent for the European Union.

Throughout the Greek crisis the German chancellor Angela Merkel has argued that German taxpayers should not be penalised for the mismanagement and incompetence of the Greek Government.

Today she won the battle against France, which had been pushing for an independently funded EU solution.

After hammering out the deal in Brussels, Ms Merkel assured the cynics that the IMF would only be engaged if all else fails.

“I suggest that we envisage a combination of IMF and bilateral help if the situation arises where Greece can’t obtain any money itself,” she said.

“I think it’s important that we focus on this as a last resort and we can then consider things further. But I want us to learn from this because, in actual fact, we don’t want to get into such a situation.”

Despite today’s agreement, the Greek prime minister George Papandreou maintains the problem can be solved without any outside help, and that his unpopular austerity measures will rein in the nation’s $440 billion debt.

“Greece will move ahead in a positive and in the right direction. Of course today the challenge is a European one,” he said.

If activated, the IMF assistance could provide an immediate injection of $33 billion to assist Greece in meeting the interest on its sovereign debt repayments.

The Swedish prime minister Fredrik Reinfeldt says the EU should take any help it can get from the IMF.

“They have the resources, the knowledge, the experience which I think is needed because if you don’t basically in the structures of the economy solve your problems they will come back,” he said.

“That has to be done by Greece themselves. And that, in my experience, is also what the IMF can provide. And if that’s the German position, it has support from Sweden.”

However, Angela Merkel’s victory has angered the president of the European Central Bank, Jean-Claude Trichet. The world’s second-most powerful central banker says it is a bad idea and that the EU needs to resolve the crisis on its own.

“Everything that means the members of the eurozone are giving away their responsibility is bad. If the IMF or any other organisation takes responsibility instead of the eurogroup or the governments it’s very, very bad,” he said.

Even so, the deal provided a shot in the arm for European shares which hit an 18-month closing high on the news.

While the euro fell to a new 10-month low against the US dollar, European traders like Oliver Roth are relieved in the short term.

“The stock exchange doesn’t [care] right now if it’s the IMF or it’s the membership, the members of the EU who are the active part of it [a bailout],” he said.

“For us it is important for the sake of the currency that Greece has to be disciplined for the budget and that they’re saving money to be a part of the rescue.”

But in the immediate case of Greece, the outlook remains bleak according to the head of the world’s biggest bond fund Pimco.

This morning Bill Gross was asked about his Greek investment strategy and he says it is right to be scared.

“Well we stay away from it. You know there are simply much more attractive alternatives elsewhere that stand a better chance of solvency, so to speak, and of getting your money back.”

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Reserve Bank defends transparency on rates policy

March 27, 2010 By Leave a Comment

The Governor of the Reserve Bank has shrugged off concerns about transparency regarding its interest rate decisions.

After a speech about global financial developments in Sydney this morning, Glenn Stevens said that prior to the economic downturn, financial markets and economists were too relaxed about when central banks would move rates.

“One of the problems in the pre-crisis risk build-up period was arguably a little bit too much comfort being taken by financial markets and borrowers generally, that the central bank would never hurt them or surprise them,” he said.

“But we have certainly never made a commitment that there’ll not be surprises and nor should we and nor should any central bank in my opinion.”

In February, the RBA shocked economists and financial markets by leaving the cash rate on hold after three consecutive monthly rises at the end of last year.

Mr Stevens said the Reserve Bank’s decisions should be thought about within an agreed framework.

“I think that framework remains in place, certainly in our case,” he said.

“It’s possibly more difficult elsewhere, where unconventional things have had to be done and everybody’s working in unfamiliar territory.

“But here, we’ve got the same framework, the same objective, the same modus operandi, but there’ll still be the occasional controversy over did they or didn’t they or will they or wont’ they in this particular month,” he added.

“I don’t think actually think from an overall perspective that’s all that big a deal, frankly.”

Mr Stevens also rejected suggestions that increased demand from foreign investors and temporary residents is driving up Australian property prices.

When asked whether the abolition of restrictions on property purchases by temporary residents and foreign investors had led to house price inflation, he said there were no hard facts to support that theory.

“While there probably is some more prominence of foreign buyers, it’s most likely still a very small share of overall turnover,” Mr Stevens said.

“Mostly what’s pushing up housing prices over the past 15 months or more, is Australians, who are seeking to get or to upgrade their accommodation.”

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , ,

‘Peak debt’ approaching as house prices outstrip incomes

March 26, 2010 By Leave a Comment

The growth in household debt and house prices in Australia is unsustainable and the nation must at some stage hit “peak debt’, according to a senior partner in one of the world’s biggest management consultancies.

“In the past ten years our household debt has grown much faster and to a much higher level than it is in places like the the UK and the US where we tend to look at them and say, ‘my goodness, look at that incredibly high level of household debt’,” Michael Rennie, managing partner of McKinsey and Co for Australia and New Zealand, told ABC Radio’s PM program.

“You have to ask yourself, ‘when does it become a problem?’”

Asked about predictions that house prices would double this decade, he said:

“They’re saying they are going to double in the next ten years because of supply and demand: that there’s a lack of supply, and demand is going to increase because of the increase in population in the cities, etcetera.

“But you have to ask yourself, if you look at the research that’s been done over the past couple of years by APRA and others on the percentage of households paying more than 30 per cent [of gross household income on mortgage repayments] which is the comfort level for their mortgages, and incomes aren’t going to double, you’ve got to say somewhere along the line that is all not going to add up.

“We hit peak debt at some point. We hit a level that is well above people’s sustainability.”

A global study by McKinsey and Co is also predicting that the world faces at least five more years of constrained growth as economies “deleverage”, or unwind excessive levels of debt.

Although China will partially insulate Australia, we will not be immune, and it will hit exports.

“About 21 per cent of our goods exports and about 27 per cent of our services exports in the past five years have gone to countries that are going to go through this deleveraging in the next five years,” Michael Rennie says.

His comments come as new estimates from the ABS show a surge in Australia’s population.

More than 450,000 people were added to the population, which grew by 2.1 per cent last year to almost 23 million.

Economists say the rapid population growth will underpin growth in GDP and bolster house prices.

But Michael Rennie argues that, even with the population growth, it is impossible for house prices to keep outstripping incomes.

The growth in population will also add to overall demand and could encourage the RBA to lift interest rates.

“We can imagine this scenario where there is tightening monetary policy ….meaning that people are going to pay more for their mortgages; interest rates are going to go up,” he explained.

“At the same time, you have a supply and demand issue with housing which means the price of houses is going to go up.

“A the same time, incomes are not going to go up at the same level and, at some time, all those three are going to come together and it is not going to be sustainable.”

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , ,

Reserve Bank indicates more rate hikes on the way

March 26, 2010 By Leave a Comment

The Reserve Bank says the economic outlook for Australia appears considerably brighter than that of many other advanced economies.

The RBA says the current debt problems in Europe highlight the fact that many governments have a long way to go to escape their financial predicaments.

In a speech to the Australian Industry Group economic forum in Sydney, the Reserve Bank’s assistant governor, Philip Lowe, said many countries are dealing with large deficits and an ageing population is putting pressure on budgets.

Dr Lowe said in the years ahead, significant steps will have to be taken to bring public finances into line.

“The flexibility that they have to determine the timing and size of these steps is limited by the fact they went into the current downturn with already high levels of debt,” he said.

“As a results of the poor starting point, many are now treading a very narrow path.

“On the one hand, tightening fiscal policy in the very near term risks derailing the recovery, while not doing so risks a damaging loss of confidence.”

The RBA says its quick response to changing economic conditions has given it the flexibility to deal with any potential global economic upsets and that, while the outlook for Australia is mostly positive, there are still risks.

Dr Lowe says the RBA’s preference in regard to monetary policy is to act quickly, then take time to evaluate and make further adjustments if necessary.

“The alternative of waiting to see how these myriad risks evolve before adjusting policy runs the significant downside of moving too late, particularly given that the economy is starting this upswing with less spare capacity than in previous upswings,” he said.

“Fortunately in Australia we’ve had the policy flexibility to respond to changing events, and so far this has served us very well.”

The Reserve Bank also again indicated it will keep raising interest rates until they reach a more normal level.

“The important thing is the level of interest rates that borrowers face, not the cash rate,” Dr Lowe said.

“At the moment the mortgage rate is still around 50 basis points below the average of the last decade and a half.”

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , ,

Muted start for local stocks

March 20, 2010 By Leave a Comment

The Australian share market has opened slightly lower today, after Wall Street finished fairly mixed overnight.

At 10.15am AEDT the All Ordinaries Index was down 2.4 points to 4,875.3 and the ASX 200 was down 4.1 points to 4,859.

In the US, the Dow Jones Industrial Average gained ground for an eighth straight day, but the S&P 500 Index ended the session flat.

Boeing reached its highest level in a year during the US trading session at $US70.62 and remains among the Dow’s best performing stocks this year.

In economic news, the Philadelphia Federal Reserve Bank’s index showed factory activity in the Mid-Atlantic region expanded more than expected in March, but new orders fell.

Other figures revealed consumer prices were flat in February, backing up the Federal Reserve’s decision to keep interest rates low for an extended period.

New claims for unemployment benefits also fell last week, but not by as much as economists had expected.

By the close, the Dow was up 45.5 points to 10,779.17.

The S&P 500 closed down 0.38 points at 1,165.83 and the Nasdaq Composite Index finished 2.19 points higher at 2,391.28.

In Britain, a flat session for the banking and mining sectors off-set gains by pharmaceutical and energy stocks.

British factory orders fell faster-than-expected in March and companies were less optimistic about increasing output in the months ahead.

Analysts say that provided further evidence of the sluggish recovery the UK is making from its recession.

By the end of the session, the FTSE 100 had lost 2.01 points to close at 5,642.62.

The Australian dollar has eased from yesterday’s close and at 10.15am AEDT it was worth 92.04 US cents.

On the cross rates it was at 67.61 euro cents; 83.28 Japanese yen; 60.35 pence Sterling; and $NZ1.28.

Spot gold was slightly higher at $US1,126.40 an ounce.

West Texas Crude had eased to $US82.15 a barrel and the price of a barrel of Tapis had fallen to $US82.92.

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Bernanke opposes Obama’s Fed reforms

March 19, 2010 By Leave a Comment

A political battle is underway in the United States over president Barack Obama’s new rules to regulate financial firms.

At the heart of the Obama crackdown is the role of the US Federal Reserve. The legislation unveiled earlier this week suggests that the central bank would supervise only the biggest banks, those described as “too big to fail.”

But the Federal Reserve chairman Ben Bernanke says he wants to have control over Main Street as well as Wall Street.

However, Ben Bernanke has faced a grilling in front of Congress, and was constantly reminded that the US Federal Reserve failed to see the global financial meltdown coming.

“There’s been a massive failure on the part of the Fed in my opinion,” said one member of the powerful House Financial Services Committee in Washington.

“I don’t understand why a regulator can’t take a look at a product and say this is so bad, this is so predatory that it shouldn’t be on the market, and we’re not going to allow it to be on the market,” commented another.

“I think we would have had a much better outcome if we would have had people that were doing the job that they were already supposed to be doing,” opined a third.

The world’s most powerful central banker was making no excuses.

“We need to change our culture, our structure and our instructions to examiners and so on to make sure that we do a better job next time,” Ben Bernanke acknowledged.

“So everyone has to do a better job. We are working to do a better job.”

However, Democrat Gary Ackerman was not giving up on the Fed’s flat-footed record in forecasting the global financial crisis.

“How do you miss it and how would have you done it different? Because if you’re not going to do it different, then we’re moving down the wrong direction here,” he said.

“Well that’s the $64 billion question you just asked,” responded the Fed chairman.

“No it’s a trillion, it’s a multi-trillion dollar question,” corrected Mr Ackerman.

“So there were mistakes and problems throughout the system. Other regulators and the Federal Reserve, private sector and even Congress made mistakes in this crisis,” Ben Bernanke replied.

“We have been doing a lot of soul searching and a lot of changes.”

‘Too-big-to-fail regulator’

However, that might not be enough. Under a proposed crack-down announced earlier this week, the Federal Reserve would be limited to supervising banks with more than $US50 billion in assets. It is part of the biggest regulatory overhaul in the United States since the 1930s.

Ben Bernanke warns a stripped back Fed would be a mistake.

“We are quite concerned by proposals to make the Fed a regulator only of the biggest banks. It makes us essentially the too-big-to-fail regulator. We don’t want that responsibility,” he argued.

“We want to have a connection to Main Street as well as to Wall Street.”

Paul Volcker, who was Fed chairman under presidents Jimmy Carter and Ronald Reagan agrees the US central bank mishandled the lead-up to the crisis.

“There were gaps in regulation, gaps in authority. One was large gaps in the investment banking area, in my opinion, where a lot of the crisis arose,” he said.

But he also says the notion of the Federal Reserve only handing banks regarded as too big to fail could create a false sense of security.

“They [the large banks] should not have any expectation that they’re going to be bailed out,” he added.

The deputy treasury secretary, Neal Wolin, has rebuffed Ben Bernanke’s concerns and says a tighter Fed focus on the big players will be better for consumers.

“I know there are lots of people out there trying to water down these provisions, but I think we want to stand for strong protections,” he said.

“We want to make sure that consumers have transparency, are capable of making choices when they really engage in some of the most consequential financial transactions in their lives.”

The proposed overhaul is now at the centre of a widening debate over the role of the Federal Reserve, in particular its independence from the winds of government.

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , ,

Rate rises on the way

March 17, 2010 By Leave a Comment

The Reserve Bank decided to raise interest rates in March because the balance of economic data showed the domestic economy was growing close to its speed limit.

The minutes to the Reserve Bank of Australia’s March policy meeting showed the central bank concluding that, while a fiscal crisis in Europe could roil global markets and the economy if not handled properly, it did not see that as the most likely outcome.

It also noted that domestic house prices were rising strongly almost across the board.

On balance, members concluded, “it remained appropriate for interest rates to move gradually towards normal levels, and that it was timely to take another step in that direction.”

AMP Capital Investors chief economist, Shane Oliver, says he thinks the word gradual means no rate rise in April.

“I get the clear impression that the Reserve Bank is signalling that it’s going to retain this gradual approach and that to me suggests that we’ll have several meetings where absolutely nothing happens,” he told ABC News.

“I think if the Reserve Bank were to raise interest rates in April they might be concerned that that would signal to the market that they’re departing from a gradual approach.”

However, Macquarie’s interest rate strategist, Rory Robertson, says a rate rise in April is as likely as May.

“Some people have grabbed onto the word ‘gradual’ and said well gradual isn’t back-to-back… rate hikes but, in fact, the Reserve Bank used the word gradual in the equivalent minutes in November, when it was just about to deliver a third consecutive rate hike in December,” he told ABC News.

“I think that the market in general is starting to think that the cash rate might be 5 per cent by the end of the year, versus 4 per cent now.

“We’re in March now, so there’s nine more meetings before the end of the year – the market has in mind there might be four more cash rate hikes – so it’s almost a 50-50 chance at any particular meeting.”

Housing, Greece concerns

The Reserve Bank indicated that it is still concerned by the strength of inflation in home prices.

“While housing loan approvals had slowed a little, house prices had gained significant momentum and were continuing to rise strongly for all but the bottom segment of the market,” the board concluded.

The RBA had raised interest rates by 25 basis points to 4.0 per cent in March, marking the fourth time it had tightened policy since October when rates were at a record low of 3.0 per cent.

The moves render Australian rates the highest in the developed world, and underscore the resilience in Australia’s economy.

Australia had survived the world economic crisis relatively unscathed owing to a buoyant property market, a healthy bank sector and strong Chinese demand for its commodity exports.

“Indeed, some recent indicators suggested that growth might already have been running at or close to trend for a few months,” the RBA noted.

Australia’s long-term growth potential is estimated to be around 3.5 per cent, a pace which the RBA expects to see over the next two years.

Healthy consumer spending, a pick-up in housing construction activity, early signs of a recovery in business credit, and a mining boom that should boost the economy over a number of years all underpinned the RBA’s bullish outlook.

On Greece, where a festering fiscal crisis has hammered the euro and dented investors’ demand for riskier assets of late, the RBA noted that the exposure of the global banking sector to Greece were “quite small” in absolute terms.

It said that even for countries with the biggest banking exposure to Greece, the nation only accounted for a small proportion of their total foreign claims.

“The main risk was the possibility of contagion to other sovereigns and perhaps other markets, primarily in the euro area,” the bank noted.

However, the board concluded that it was unlikely this would lead to a renewed bout of turmoil in financial markets.

-Reuters/ABC

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , , ,

Local shares flat after Wall Street’s mixed finish

March 17, 2010 By Leave a Comment

It has been a fairly lacklustre start to trading on the Australian share market, after Wall Street experienced another mixed finish overnight.

At 10.10am AEDT the All Ordinaries Index was up 4.8 points to 4,804 and the ASX 200 was 4.9 points higher at 4,789.

The prospect of further credit tightening in China spooked investors overnight, with concerns the move could restrict growth in the global economy.

Shanghai’s main stock index fell to its lowest close in five weeks.

The United States banking sector came under pressure early in the session, after the Senate Banking Committee chairman, Christopher Dodd, released a proposed financial regulation overhaul bill.

Crude oil slipped back below $US80 per barrel, hurting energy stocks.

Investors also exercised caution in the lead up to the US Federal Reserve’s interest rate decision on Tuesday and the Bank Of Japan’s rates decision on Wednesday.

A late rally by financial stocks saw the Dow Jones Industrial Average closed up 17.46 points to 10,642.15.

The S&P 500 finished 0.52 points higher at 1,150.51 and the Nasdaq Composite Index lost 5.45 points to 2,362.21.

Weaker oil and commodity prices put pressure on the British share market overnight.

Some broker downgrades for technology firms weighed on that sector and banks were also generally weaker.

By the close London’s FTSE 100 had given up 31.80 points to 5,593.85.

The Australian dollar has been hovering just below yesterday’s closing level and at 10.10am AEDT it was worth 91.31 US cents.

On the cross rates it was at 66.77 euro cents; 82.58 Japanese yen; 60.68 pence Sterling; and $NZ1.30.

Spot gold had edged up to $US1,106 an ounce.

West Texas Crude had fallen to $US79.80 per barrel and the price of a barrel of Tapis crude was also lower at $US84.61.

Filed Under: International News Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,