Friday, December 9, 2011

Banks finally pass on official rate cut; but RBA governor frustrated at rewriting of history of cash rate link to what commercial banks end up doing

The governor of the Reserve Bank Glenn Stevens is exasperated at how history has been rewritten on the link between official cash rate movements and what banks do with mortgage rates.

Mr Stevens was speaking in Sydney last night shortly before Westpac became the last of the big four banks to pass on Tuesday's 0.25 percent rate cut in full.

Mr Stevens says over history, banks have not moved in lockstep with the Reserve Bank despite perceptions in the media and from the Treasurer Wayne Swan that rate cuts or increases are always passed on.

Rather than expecting commercial banks to shadow the RBA, Mr Stevens said the central bank considered where it would like to see mortgage rates before deciding on a level to move.

And he said that without that strategy, the standard variable rate used by banks might be around one percentage point higher than they are today.

Listen to Glenn Stevens' comments and my analysis broadcast on this morning's edition of AM.

In a wide ranging speech, Mr Stevens also warned there could be a high price to be paid by western developed nations if China is called upon to bail out debt-laden Eurozone nations.

Listen to my report and the views of economist Stephen Koukoulas broadcast on The World Today

Thursday, December 8, 2011

Big four banks remain silent on handing over rate cut as Europe crisis simmers

The big four banks boast about their individuality, their market competition and care for customers yet so far all have decided not to react to Tuesday's Reserve Bank cut to official interest rates.

Instead they're sitting on their hands and not announcing whether they will pass on all or even part of the rate reduction.

The last rate cut came on Melbourne Cup day and it saw the banks react within minutes.

But the latest announcement of a 0.25 percent fall in the cash rate was followed by silence.

Bank customers have been left in the dark. Someone with a $200,000 mortgage stands to save $32 a month if the reduction is delivered in full.

The AM program hit Sydney's Martin Place to gauge the view of borrowers and I put the local anger in context with the looming debt crisis in Europe.

Listen to it here.

As the banks remain in damage control, there's been surprisingly good news on the strength of the Australian economy.

According to the Bureau of Statistics, September quarter growth rose one percent and 2.5 percent year on year.

The gains were fuelled by mining, construction and a rise in consumer spending.

Here's my analysis from The World Today.

Tuesday, December 6, 2011

Reserve Bank cuts again as Europe crisis escalates and inflation softens

The Reserve Bank has cut interest rates for the second consecutive month as Europe's debt crisis escalates and local inflation softens.

In a statement, the RBA governor Glenn Stevens said the board had cut the cash rate by 0.25 percent to 4.25 percent - the lowest level since April 2010.

Here's my analysis from ABC News Online.

In outlining its reasons, the RBA board said:

* the inflation outlook "afforded scope for a modest reduction in the cash rate"
* growth in the global economy had moderated
* growth in China was slowing as policymakers had intended
* trade in Asia was seeing the effects of a significant slowing in Europe
* sovereign credit and banking problems in Europe were likely to weigh on economic activity
* financial markets had experienced considerable turbulence and financing conditions had become more difficult

Read the RBA statement here.

The RBA's decision comes as Eurozone leaders prepare to meet in Brussels to find a solution on containing Europe's debt crisis.

But there is an even more disturbing backdrop courtesy of a stark warning from Standard & Poor's.

S&P has put 15 Eurozone nations on "credit watch negative", warning that six could lose their AAA status.

Two nations are spared.

Cyprus because it was already on negative watch, and Greece is already at junk status with S&P reconfirming its view that a Greek default is a high likelihood.

Here's the full statement from Standard & Poor's.

Inflation continues to head south according to private gauge - another reason for the RBA to cut rates?

A private gauge on inflation released on Monday would have given the Reserve Bank another reason to cut interest rates.

A closely watched private measure by TD Securities and the Melbourne Institute put annualised inflation at 2.1 percent - right at the bottom of the central bank's target band of two to three percent over time.

In addition to the deteriorating situation in Europe, more comfort about inflation could be a rate cut trigger.

Here's my analysis from Monday's edition of The World Today.

Reserve Bank poised to cut interest rates as buffer against Europe crisis

I reported on Monday that the board of the Reserve Bank was preparing to hold its final meeting against the backdrop of a deepening crisis in Europe.

However, at the time economists were split on whether another interest rate cut was likely to provide a buffer against a potential breakup of the Eurozone next year.

As the situation looms from bad to worse, 13 of 25 economists polled by Bloomberg predicted the Reserve Bank would decide on another rate cut to 4.25 percent.

Meanwhile, the "big four" banks have combined to assist borrowers who could come under mortgage stress, given the outlook for rising unemployment.

Here's my analysis from Monday's edition of AM.