Friday, February 10, 2012

RBA says inflation outlook leaves scope for rate cut; agrees funding costs are higher for banks but that lending rates are at medium term averages

The Reserve Bank has signalled that it may move to ease interest rates again if inflation continues to soften. 

In its quarterly statement on monetary policy released today, the RBA said the combined 0.5 percentage point cuts in the official cash rate in November and December were driven by the improved inflation outlook.

The central bank also defended its decision to leave the cash rate on hold at 4.25 per cent earlier this week, given that prior cuts largely had been passed on to borrowers and lending rates were close to average. 

The RBA sees underlying inflation hovering at around 2.5 per cent, which would "provide scope for easing monetary policy should demand conditions weaken materially".

The central bank said it would adjust the cash rate "as necessary to foster sustainable growth and low inflation".

The RBA also confirmed that banks were facing higher costs to source money – the key reason why the banks are warning that they may not pass on future official rate cuts in full. 

Greek politicians agree on austerity terms for bailout deal. But European leaders have seen it before and are waiting on the fine print.

Greek political leaders appear to have clinched a long-awaited deal to secure a second bailout that could prevent a much feared debt default.

While the breakthrough has been welcomed, EU finance ministers arriving for talks in Brussels this morning have warned that Greece still needs to prove itself by enforcing the strict austerity measures attached to the deal.

Greek taxpayers are bracing for more pain with a cut to the minimum wage and deeper cuts to the public services. However, a much feared increase in the retirement age has been spared.

European stocks closed slightly higher underscoring the scepticism of investors who've had their hopes dashed before.

Thursday, February 9, 2012

News Corporation posts a billion dollar quarterly profit but phone hacking charges hit bottom line

News Corporation has this morning posted a quarterly profit of just over a billion US dollars.

The 65 percent profit increase has been fed by growth in cable television and film production from Hollywood.

Here's my analysis of the results broadcast in this morning's edition of AM.

But News Corporation's bottom line has been hurt by surging costs from the contining phone hacking scandal that resulted in the closure of The News of the World.

News says the profit was hit by a US$87 million charge for costs relating to the scandal.

The company has also confirmed that its profit guidance has been swept up in the pipelne of costs relating to phone hacking investigations.

Wednesday, February 8, 2012

BHP Billiton posts another monster profit of US$9.9 billion - the first profit fall in three years.

BHP Billiton has posted a drop in net profit for the first half of the financial year, the first time profits have fallen in three years.

The world's largest miner says profit for the six months to December totalled $9.94 billion, a 5.5 per cent fall compared with the same time a year earlier.

The company's short-term outlook was mixed, but chief executive Marius Kloppers said Australia's economic stability should offer protection in the long term.

BHP has also warned that markets are set to remain volatile because of the woes in Europe and sluggish global growth.

Banks poised to raise mortgage rates independently of the Reserve Bank. Is it now a question of how much and when?

Australia's big banks could take yesterday's Reserve Bank decision on interest rates as a green light to raise the cost of borrowing, despite Treasurer Wayne Swan's "jawboning", an economist has warned.

The RBA left the official cash rate on hold yesterday, saying the decision was based on observations of growth in China and the United States, decreasing concerns over Europe, and strength in the local economy.

Economist Stephen Koukoulas has told AM the banks might see now as a good time to claw back some of the costs they incur from sourcing funds on global markets.

Listen to the interview here.

Tuesday, February 7, 2012

Reserve Bank wrongfoots economists by leaving the cash rate on hold

Banking chiefs mobilise to defend monster profits; Future Fund boss David Murray calls the Treasurer's bank bashing campaign "simplistic"

The debate over what, if anything, will be passed on from today's anticipated rate cut has deepened the stoush between banks and the federal government.

Throughout the morning the Treasurer and banking chiefs have been duelling in public about the impact of higher funding costs on multi billion dollar bank profits.

Most economists expect the Reserve Bank to cut the cash rate by a quarter of a percentage point when makes its decision known later this afternoon

The chairman of the Future Fund David Murray - himself a former chief executive of the Commonwealth Bank - said the government's campaign amount to political pressure.

And he told me on the AM  program that Wayne Swan's call for banks to pass on any rate cut in full was "simplistic".

Listen to the interview and my analysis here.

Monday, February 6, 2012

Softer inflation, negative retail sales add to case for interest rate cut. But still a close call.

A better outlook for inflation and bleak retail sales in the leadup to Christmas should combine to push the Reserve Bank board to cut interest rates tomorrow.

Listen to my analysis from today's edition of The World Today.

Join me on ABC News 24 tomorrow at 2.30pm AEST for live coverage of the interest rate decision.

The closely-watched inflation gauge from TD Securities and the Melbourne Institute posted a modest rise of 0.2 percent in January making an annual rate of 2.2 percent.

The soft result is in line with the RBA's forecasts which sees inflation heading to the bottom of the two to three percent target band.

Retail turnover went negative in December, according to the Bureau of Statistics, falling 0.1 percent - well below expectations for a positive result.

The one piece of conflicting data came from the ANZ job advertisements series, which showed advertisements in newspapers and on the Internet rose six percent in January.

ANZ says the result dampens expectations that the jobless rate could hit 5.5 percent this year.

The positive news underpins the ANZ's tip that interest rates could stay on hold at 4.25 percent tomorrow.

RBA poised to cut rates for third month but it will be a close call

The board of the Reserve Bank holds its first meeting of the year tomorrow and bets are firming for another rate cut.

Tomorrow's meeting takes place in a slightly less fragile world than the final meeting of last year, amid positive economic news from the United States and a moderate easing of the eurozone's debt woes.

Just before Christmas, a catastrophic meltdown of the eurozone was looking likely, and that prompted rate cuts in November and December.

Now Europe is pulling back from the precipice, even though a deal to prevent a disorderly debt default in Greece remains elusive.

On the weekend the jobless rate in the United States fell to 8.3 per cent, with an unexpected 240,000 new jobs created.

And the RBA board will be heartened by falling inflation in Australia, which could be the trigger for an additional rate cut.

Most economists are tipping a rate cut down to 4 per cent, but it is a close call.

The RBA is on record as saying it calibrates the cash rate to ensure mortgage rates are at the right level.

So there has been some speculation that the board might provide a larger rate cut to ensure any reduction is passed on to borrowers.
But rate watchers such as Rob Henderson, chief markets economist at National Australia Bank, say that seems unlikely.

"There have been some people in the market saying that the Reserve Bank might actually cut by 50 basis points to make sure that there is a significant drop in borrowing costs, but I think that is just a little bit too cute," Mr Henderson said.

"I think that actually the Reserve Bank won't try and second-guess the market; they will do their 25 basis points if they think another cut is appropriate.

"They'll see what the banks do and if it is not all passed on, of course they can come back later and do one more rate cut after that."