Businesses tipping slower September quarter

May 12, 2010 By Leave a Comment

The latest National Business Expectations Survey from Dun and Bradstreet suggests the Reserve Bank’s interest rate rises are helping to contain price inflation.

The survey of 1,200 business owners and senior executives shows many are expecting slower growth in selling prices, sales, employment and inventories during the September quarter compared to the June quarter.

The research from Dun and Bradstreet also shows one-third of those surveyed named interest rates as the primary influence on their business.

Dun and Bradstreet chief executive Christine Christian says if prices do fall or at least remain steady, that would reduce the need for more interest rate increases.

“The decline in selling price expectations is a sign there may be some easing of inflationary pressures as firms respond to the impact of rising interest rates,” she said.

“Given that the RBA has listed rising selling prices as a key trigger for interest rate rises, this may reduce the need for further immediate action.”

Ms Christian says businesses have been extremely resilient during the economic recovery, but there may be some challenges in the months ahead.

She says many sections of the business community are still struggling to get finance.

“The overall outlook for Australian executives remains positive and was substantially better than at the same point in time in 2009,” she said.

“I think with the backdrop – particularly in the US and the UK – the question now is how long will this positive outlook continue.

“Despite some of the statements that have been coming out of both Government and the banking sector … there is still some concern by businesses that their future growth is being hampered by these very tight credit policies.

“In fact, 21 per cent of firms had less access to credit in the last quarter.”

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Mortgage stress rising along with rates

May 6, 2010 By Leave a Comment

There are fears the Reserve Bank’s rapid succession of interest rate rises will lead to more young Australians being crippled by mortgage stress.

Yesterday the Reserve Bank (RBA) moved rates up 0.25 percentage points to 4.5 per cent – the sixth increase in eight months.

The rises come on the back of record low interest rates during the global financial crisis.

Aussie Home Loans chief John Symond says many people have been unprepared for the recent spate of rate rises.

“That’s the unfortunate downside in borrowing money, particularly at a cycle where we were having interest rates at historic lows and now very rapidly interest rates have been increased by the Reserve Bank,” he said.

“Six increases in the past seven meetings is very rapid and it’s probably faster than the RBA or banks expected interest rates to rise and it certainly caught a lot of borrowers unawares.

“There’s a lot of pain out there at the moment and the conception of the consumers is that these rates – if they go up further and they probably will – we could end up in trouble.”

Mr Symond is certain borrowers will start to default on their mortgages.

“I’ve got no doubt because credit was pretty free and easy. A lot of those borrowers had not put in a lot of deposit so they are exposed to a lot of borrowings and they’re now feeling the pinch in having to find an extra $100 a week out of their pay packet,” he said.

“That’s a lot for an average family when food prices have been going up, petrol prices have been going up.

“Historically when interest rates go up you have more people struggling, more people defaulting and more people being forced to sell their homes.”

‘Over-exaggeration’

But the Mortgage and Finance Association of Australia’s chief executive, Phil Naylor, says most buyers should be prepared for the rises.

“It might impact on people who are operating very much at the margin, but our research shows that 80 per cent of respondents in our last survey said they are easily making their repayments on their home loans and that was compared to only 67 per cent a year ago,” he said.

“It’s probably a bit of an over-exaggeration to say that there are large numbers out there suffering from mortgage stress, but the potential is that if interest rates do continue to rise, those figures may not be as rosy down the line.”

He says most lenders would have been more responsible in recent years when giving out home loans.

“If [borrowers] did take a loan out in the last two years, lenders in the last two years have been much tighter about their lending criteria,” he said.

“I’m pretty certain that all major lenders and other lenders as well would have put in a factor of at least 1.5 to 2 per cent as a buffer so that in other words they wouldn’t have lent them money two years ago if they thought the borrower couldn’t continue to service the loan if rates were 1.5 to 2 per cent higher.”

‘Too fast, too soon’

But Mr Symond says he thinks RBA governor Glenn Stevens pushed rates up too fast too soon.

“The Reserve Bank governor consistently says gradual increases are necessary, but that gradual was thrown out the window and they’ve consistently upped them. Six increases out of seven meetings isn’t my definition of gradual,” he said.

Mr Symond says hopefully the RBA will put the brakes on further increases in the coming months.

But he says more rate rises are inevitable.

“They are now going to become very hawkish and concentrate on inflation and if our inflation numbers trend up, interest rates will continue to trend up and hopefully we’ll have a couple of months without further increases, but you should factor in at least another two or three 25 basis point increases later this year,” he said.

Meanwhile, both Mr Symond and Mr Naylor say borrowers who are worried about defaulting on their mortgage should speak to their lenders.

“Those people who feel they are really getting close to getting into trouble, don’t wait to get into trouble,” Mr Symond said.

“Put your hand up, contact your lender. The last thing the bank or any lender wants to do is see a customer default and at worst lose their home.

“The sooner you can go in and talk with the lender, explain the circumstances, the better the chance to reconfigure the loan, to renegotiate, to give you the best chance to make sure you get through this.”

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Banks pounce on interest rate hike

May 5, 2010 By Leave a Comment

The big banks have already moved to pass on in full the Reserve Bank’s 25 basis point interest rate rise.

The RBA’s sixth hike in eight months takes the official cash rate target to 4.5 per cent and will add about $48 a month to mortgage repayments on a $300,000 loan with a 25-year term.

The Commonwealth Bank was the first of the big banks to announce it was lifting its rates following the RBA decision.

The 0.25 per cent rise takes the bank’s standard variable home loan rate to 7.36 per cent.

National Australia Bank later lifted its standard variable home loan interest rate to 7.24 per cent, effective from Friday.

Westpac followed suit, lifting its standard variable rate which will sit at 7.51 per cent from Friday, before ANZ completed the quartet saying its standard variable rate will rise to 7.41 per cent.

Reserve Bank governor Glenn Stevens has repeatedly stated Australia’s economic growth is returning to around average levels and interest rates also need to return to about average.

Most economists expect that average level to be around 4.5 to 5 per cent, leaving many analysts forecasting a pause in rate rises after today’s move.

Financial markets were not surprised by the move, with 18 out 24 market economists surveyed by Bloomberg expecting rates to rise by 0.25 percentage points.

Mr Stevens said inflation has not fallen as much as forecast and is likely to be in the upper half of the RBA’s 2 to 3 per cent target band.

However, for the first time, he also says interest rates for most borrowers are now back around average levels.

“The board expects that, as a result of today’s decision, rates for most borrowers will be around average levels,” he noted in his statement.

“This represents a significant adjustment from the very expansionary settings reached a year ago.”

However Mr Stevens warned Australia’s terms of trade are rising by more than expected and this year will probably regain the peak seen in 2008.

“This will add to incomes and foster a build-up in investment in the resources sector,” he said.

“Under these conditions, output growth over the year ahead is likely to exceed that seen last year, even though the effects of earlier expansionary policy measures will be diminishing.”

The Reserve Bank has previously said its aim in the short-term was to get rates back to average to match Australia’s current level of economic growth.

The Australian dollar fell slightly after the announcement on speculation the Reserve Bank may now pause before its next rate rise.

‘Tough for families’

Federal Treasurer Wayne Swan says today’s rate rise is tough for families and small businesses.

“Unfortunately this is one of the difficult consequences of an economy that is recovering better than other advanced economies, but as the Reserve Bank itself has observed today, rates are returning to more normal levels,” he said.

He says mortgage holders should remember that rates are still significantly lower than they were at their peak.

Mr Swan says the RBA’s decision does not put further pressure on him to deliver a tight budget next Tuesday, saying it will be a “no-frills budget”.

The Federal Opposition says the Government has failed to keep interest rates down.

Opposition treasury spokesman Joe Hockey says the interest rate rise makes life more expensive and difficult for families.

“For everyday Australians this is the head-high tackle they did not deserve,” Mr Hockey said.

Mr Hockey says the Government has also failed to stop the banks from increasing their interest rates by more than just the cash rate.

“We’ve seen increases in interest rates in recent months. Those increases haven’t stopped the price of real estate going up, yet [Kevin] Rudd promised the Australian people faithfully that he would make housing more affordable. This is another policy failure,” Mr Hockey said.

“Wayne Swan can huff and puff and try and blow the banks down, but he fails every time because the banks are putting up interest rates by more than the cash rate margin.”

Business pain

Business groups say the interest rate rise takes rates above average levels and may damage the economic recovery.

The RBA says its move to raise interest rates to 4.5 per cent takes most lending rates back to average levels, but the Australian Industry Group and Housing Industry Association argue interest rates on many business loans are above average.

Chamber of Commerce and Industry spokesman Greg Evans says the rate rise will cause difficulty for businesses and he called on the Reserve Bank to put rates on hold.

“We have households now facing mortgages of 7 per cent plus, we have small businesses facing overdraft levels of 10 per cent plus, so these are the sorts of conditions we’re concerned are starting to bite and will potentially affect overall demand conditions in the economy,” Mr Evans said.

Manufacturers say the rising interest rates are also hurting them through a rising Australian dollar.

But JP Morgan economist Helen Kevans says the rate rises have not hit consumers yet.

“We probably need another 50 to 75 basis points of tightening before those rate hikes really start to bite,” Ms Kevans said.

JP Morgan is forecasting official interest rates to hit 6.25 per cent by the end of next year.

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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.”

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RBA’s Stephens rates were too low

March 29, 2010 By Leave a Comment

SYDNEY, March 29 (Reuters) – The Governor of the Reserve Bank of Australia Glenn Stevens said on Monday that interest rates had been too low and could not remain at previous levels.

“If you look back when the economy was stable and we had low inflation on the cash rate, that is the rate we decide on, the rate has been in the average of 5 percent,” Stevens said in an interview to Channel 7.

He said the relationship between the cash rate and mortgage rates would decide normal level of rates. ((Australia newsroom; +61 2 9373 1800))

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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.”

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RBA reluctant to regulate credit card fees

March 16, 2010 By Leave a Comment

The Reserve Bank says it is undecided on whether direct regulation or increased competition is needed to reduce the transaction fees that credit card companies charge.

During a speech to a cards and payments conference in Sydney this morning, the RBA’s assistant governor Malcolm Edey said the central bank is a reluctant regulator when it comes to credit cards.

He says the central bank is undecided as to whether it should step in to force another reduction in the transaction fees.

He says credit card interchange fees – the fees banks charge one another when purchases are made by credit card – have fallen since the RBA’s changes three years ago.

In that time they have gone from 95 basis points, which is almost 1 per cent, to an average of 50 basis points, which is half of 1 per cent.

But Dr Edey says even with that reduction, interchange fees are still too high.

“The Reserve Bank is a reluctant regulator. We’d prefer to see fees being held down by competition rather than direct regulation,” he said.

“We believe there’s been good progress in promoting competition over recent years, but it’s not yet clear whether that will be sufficient.”

In August last year, the RBA deferred a decision to make a further reduction on interchange fees to 30 basis points.

“Our general mandate with respect to the payments system is to promote efficiency and stability,” Dr Edey said.

“That includes taking measures to stop fees from rising too far above efficient levels. But our preference is to do that when we can by promoting competition rather than by direct regulation of fees.”

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Consumer confidence flat as rates rise

March 11, 2010 By Leave a Comment

A leading private survey has shown resilience among Australian consumers, despite the interest rate rise in March.

The Westpac – Melbourne Institute consumer sentiment index remained broadly flat in March at 117.3 points, only 0.2 per cent higher than the February result of 117.

The bank’s chief economist, Bill Evans, says that is strong result in a month where official interest rates rose, and indicates that rates may have to rise further before impacting significantly on household spending.

“This is a solid result given the backdrop of a fourth official rate rise,” he noted in the report.

“However the previous rate hike cycle and the March sentiment reading suggests mortgage rates have not reached the point where increases have a major impact on confidence.”

Westpac says the average standard variable mortgage rate is about 6.9 per cent after the Reserve Bank increased the official cash rate by 0.25 percentage points to 4 per cent at the beginning of March.

He says this is likely to change as the average variable mortgage rate climbs above 7 per cent over the coming months.

“History suggests 7 per cent is a significant threshold mortgage rate for consumers,” he added.

“When the RBA raised the overnight cash rate in December 2003 from 5.0 per cent to 5.25 per cent the average variable mortgage rate increased to a comparable 7.05 per cent. The Westpac – Melbourne Institute Index of Consumer Sentiment was reasonably stable falling by only 1.9 per cent.

“When the [Reserve] Bank next increased the cash rate, by 0.25 per cent in March 2005, the variable mortgage rate rose to 7.3 per cent and confidence plummeted by 15.5 per cent.

“Over the 2006-2008 period the [Reserve] Bank increased the overnight cash rate on seven further occasions in tranches of 0.25 per cent with the variable mortgage rate reaching 9.35 per cent in March 2008. The average fall in the index following each of those rate hikes was 8.5 per cent.

“Based on this evidence alone we may be nearing the point where confidence becomes much more sensitive to increases in interest rates.”

However, Bill Evans also warns that households have a lot more debt than in 2003, and he expects that will make consumer confidence more sensitive to future interest rate increases.

“Households are holding significantly more debt than during that last period.,” he said.

“Debt to income ratios are around 20 per cent higher today than they were in 2003. And that may make them more sensitive to rises this time around.”

Mr Evans says the strong employment figures over recent months are likely to have helped keep consumer confidence high, as has the continued strength of the Australian dollar which is making imported goods cheaper.

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Australia cenbank loans $240 mln in 84-day repo

April 18, 2009 By Leave a Comment

SYDNEY, April 17 (Reuters) – Australia’s central bank said it loaned just $240 million in an 84-day repurchase tender on Friday, far below the $10 billion on offer.

The Reserve Bank of Australia (RBA) received bids for only 0.02 times the amount on offer, a clear easing in the urgent demand for dollars seen during the darkest days of the credit crunch, at least in this region.

The weighted average yield was 1.120 percent and settlement is on April 20. Details can be found on RBA33.

The RBA and a number of other central banks last year established and then expanded U.S. dollar swap lines with the U.S. Federal Reserve to meet demand for dollar liquidity amid the global credit squeeze. (Reporting by Wayne Cole; Editing by Jonathan Standing)

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Australian stocks in decline

October 27, 2008 By Leave a Comment

Sydney – Australian stocks tumbled at the bell Monday following heavy losses last week.

The ASX 200 lost 90 points, or 2.3 per cent, in early trading to 3,689.

Falling commodity prices and fears of a global recession took the local currency to a five-year low.

The Australian dollar was trading at 61 US cents – up from the low of 60 cents on Friday.

The Reserve Bank of Australia confirmed it intervened and bought Australian dollars to shore up the local currency over the weekend. It was only the third time since 2001 that Australia’s central bank had intervened to provide liquidity in the money market. (dpa)

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Rate cut reverses Australian stock moves

October 7, 2008 By Leave a Comment

Rate cut reverses Australian stock movesSydney – Australian stocks traded in a wide range Tuesday with the announcement mid-session of a 1-per-cent interest rate cut powering the market off morning lows.

The AXS 200 put on 78 points, or 1.7 per cent, to close the day at 4,618.

Sellers swamped the market at the opening bell with the index losing more than 3 per cent in the first minutes of trading.

But the afternoon statement from the Reserve Bank of Australia (RBA) of a bigger-than-expected cut in the rate at which it lends to banks reversed the direction and took stocks out of the red.

“We saw the market do a huge turnaround,” said Macquarie Private Wealth analyst Lucinda Chan. “Leading the market higher were the financials and the big mining stocks. Also we’ve seen very very strong support coming across the board.”

The sharp easing of monetary policy further weakened the Australian dollar’s performance on the cross rates. The local currency, which had given up 5 US cents in overnight trading to reach a two-year low of 72 US cents, dropped further to 71 US cents.

The Australian dollar has depreciated more than 20 per cent since near-parity in June as fears grow that a worldwide recession will cut demand for coal, iron ore and other big export earners.

“Commodities demand numbers of the US have been shocking recently and there are signs of slowing in China, so people are reassessing that,” said National Australia Bank economist Jeff Oughton. “Both of those work against the Aussie dollar.” (dpa)

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