Could Slovenia be the next domino to fall?

With Cyprus set to plunge into a deep recession because of harsh bailout terms that target bank deposits, the big question is: which country could be next?

Attention is now turning to Slovenia as the next potential flashpoint in the eurozone debt crisis.

Slovenia joined the eurozone in 2007 and became the first post-Soviet era nation to take on the single currency.

At first, its banking sector grew rapidly, but since 2009, when Europe's debt crisis erupted, Slovenia's banks have been under siege and the biggest are struggling with bad loans that now equate to around a fifth of economic output.

It is estimated that Slovenian banks and companies need around four billion euro in special funding to remain solvent.

Slovenian prime minister Alenka Bratusek admits the nation's finances are in bad shape and has ramped up austerity to rebuild the banking sector.

But she stresses that Slovenia's troubles are not in the same league as Cyprus - which had a much bigger and more bloated banking sector.

While there is no request for a bailout yet, the cost of protecting Slovenia's debt rose around 0.49 per cent overnight in a sign that financial markets are nervous.

The recent focus on Cyprus has also brought the fate of Greece back into sharper focus.

It has received a number of bailouts since 2009, but given that the deep austerity is only having a minimal impact, there are concerns that Greek bank deposits could be targeted if another rescue is requested.

As a result, the share market in Athens fell close to five per cent this morning before recovering.

Currency strategist Kathleen Brooks says patience is running out.

"The appetite to continue with these bailouts is very, very weak from the kind of core countries in the eurozone," Ms Brooks told the BBC.

"Now what we know about Greece which obviously has been bailed out is that there is a lot of expectation they'll need to be bailed out going forward, and if that doesn't happen and a bail in if you like comes into play, then their banks could get hit as well, so their deposit holders could get hit."

The fallout from Cyprus, combined with new fears about Slovenia, is putting pressure on bigger nations like Britain and France to build their capital base to reduce potential exposure.

The caution about Cypriot contagion has also sparked open talk that, in addition to Slovenia, smaller economies such as Malta and Luxembourg could also be exposed.

Waiting game on how Cyprus will stop flight of cash when banks re-open

By Business editor Peter Ryan – analysis

The big question for Cypriots - and foreigners holding bank accounts in Cyprus - is what happens when the nation's big two banks finally open.

But the Central Bank of Cyprus is yet to announce a plan to stop money being pulled out of the country.

So far, the central bank's governor has only said capital controls will be "loose" and "temporary" with no word on what form they'll take or how long they'll last

But the early options are not good ones for ordinary Cypriots who need to put food on the table or businesses needing to pay suppliers or be paid themselves.

Some of the options being canvassed include:

* a weekly limit on how much cash can be withdrawn from banks of ATMs

* a temporary ban on the use of cheques

* powers to prevent the use of credit or debit cards to stop money from being switched out of the country

* limits on access to fixed term bank deposits that have matured or are about to mature

* tougher restrictions on the amount of hard cash that can be taken out of the country

Extreme capital controls are rare but there are precedents.

After the collapse of Lehman Brothers in 2008, Iceland imposed capital controls to protect its currency.

Malaysia did the same during the Asian financial crisis on the late 1990s to ringfence its economy.

But as a Eurozone member, Cyprus is meant to be part of the EU model - the free movement of money, people and trade.

The proposed restrictions highlight the looming crisis Cyprus poses to the Eurozone and the imperative to do whatever it takes to stop depositors from draining bank vaults.

In other developments:

* the European Central Bank moved to quash suggestions that the bailout deal for Cyprus was not a model for future rescues in the Eurozone.

* sharemarkets in Italy and Spain fell after unconfirmed rumours that depositors were shifting their money to financial havens

* Russia's main share index fell to the lowest level in more than three months as Cyprus's bailout plan cast doubt on the safety of $60 billion of loans and deposits in the island nation.

* and the British government has told 18,000 expatriate retirees living in Cyprus to consider diverting pension payments into different accounts to avoid any losses - or perhaps have their pensions paid into the account of a trusted friend.

Global economy improving despite Cyprus bailout says cautious Reserve Bank

By Business editor Peter Ryan

Global financial conditions are continuing to improve despite this week's emergency bailout for Cyprus.

But the Reserve Bank has warned the rescue of Cyprus is the latest reminder that the Eurozone debt crisis is far from over and that another financial shock could still hit the global economy.

In it's six-monthly Financial Stability Review released today, the RBA said it was still to early to say if the improved market sentiment was the beginning of a sustained recovery or "merely a temporary upswing".

"The renewed market tension associated with the handling of the sovereign and banking crisis in Cyprus in recent weeks has provided a reminder of the political, economic and social challenges of resolving the pervasive fiscal and banking sector problems," the Review says.

"There have been a number of periods of optimism which ultimately turned out to be short-lived as financial markets refocused on unresolved underlying problems."

In the six months leading up to the Cyprus bailout, the improvement in global investor sentiment has seen a rally in risk appetite and significant gains on major bourses.

But since the Cyprus crisis has emerged, investors throughout Europe have sold off shares fearing that targeting of bank deposits in the island nation could spread to other Eurozone members.

The European Central Bank today moved to quash fears that the Cyprus solution was a precedent after the Dutch finance ministers said it could be a "template" for other rescues.

The Reserve Bank also gave a tick of approval to Australia's banking system and it "remained in a relatively strong position."

The Review says wholesale funding costs for banks have eased "at the margin" while making the point that banks have been "continuing to limit their use of wholesale funding in any case."

The RBA says growth in deposits is outpacing growth for credit and that rates paid for retail deposits "remain around historically high levels."

The comments appear to support claims from the Big Four banks that the competition war for deposits is responsible for an inability to pass on cash rate cuts in full to borrowers.

The RBA says that while banks are looking for new strategies to underpin growth, there was "little sign at this stage that banks have been motivated to take on excessive risk."

Households still prefer to pay down debt rather than take on new debt, according to the Review.

However, the RBA has warned that big household debt remains a major risk.

"Household indebtedness and gearing are nonetheless still at historically high levels and hence continuation of the household sector's more prudent approach to borrowing would assist in strengthening the financial sector's resilience."

The Review also predicts the peak in the mining investment boom is now expected to be lower and occur earlier than previously forecast.

While the impact on the financial system would be limited, the RBA warns that companies servicing the mining industry could be hurt.

"Some mining services companies could face greater difficulties in repaying their debt (and) this could lead to loan losses to financial intermediaries even though their exposure to mining services companies is small."

The Reserve Bank meets next Tuesday for discuss interest rates after cuts of 175 basis points since late 2011.

Most economists think that despite the emergency bailout for Cyprus that the cash rate will be held at 3.0 per cent.

Reserve Bank escapes cyber hack attack

By Business editor Peter Ryan

The Reserve Bank is in the midst of a security crackdown after a cyber attack with the potential to expose sensitive internal information.

The attack occurred late in 2011, when a series of emails - carrying what's been described as a "malicious payload" - targeted senior RBA staff.

While the RBA's integrity was not comprised on this occasion, there are concerns that Chinese-developed spy software is posing a major threat to government institutions including central banks.

The Reserve Bank is well known for its tight security and few, if any, cyber villains have managed to get through its digital firewall.

Listen to my story broadcast on The World Today.

However, that changed on November 16 and 17 2011, when a number of suspicious emails were sent to senior RBA staff.

According to an internal report titled "targeted email attack", six staff clicked on an embedded hyperlink to what is described as a "virus payload".

"Malicious email was highly targeted, utilising a possibly legitimate external account purporting to be a senior bank staff member. It included a legitimate email signature and a plausible subject title and content," noted the report.

"As the email has no attachments, it bypassed existing security protocols, allowing users to potentially access the malicious payload via the internet browsing infrastructure."

The report says the six users potentially compromised their workstations, and points to fears about a malicious externally generated attack, or act of sabotage, as a major risk.

While a successful cyber attack was averted this time, the report says bank assets could have been compromised, leading to service disruption, information loss and damage to the RBA's reputation.

"I think it raises the same sorts of questions that you'd have right across the public service," said Paul Bloxham, a former Reserve Bank economist and now chief economist at HSBC.

"All public institutions are subject to these potential threats from information technology attacks and cyber attacks."

He says the thwarted attack has a range of implications for the RBA and other central banks.

"It would depend on the nature of what sort of cyber attack that they got and of course it does pose a threat, and it's something that needs to be dealt with appropriately," he said.

"It's certainly something that you'd expect that central banks would need to take into account, and they're highly likely to be taking it into account because it does potentially pose a threat to their reputation and to their operations."

The Reserve Bank has refused to comment beyond the report posted on its website, and will not confirm what steps are being taken to stop further cyber attacks.

However, the report does note the difficulty in keeping up with the the speed of spy programs that can be hidden in emails.

"While users are aware of the need for caution with suspicious attachments, such awareness is unlikely to protect the bank from credible looking emails and attachments," the report said.

Tony Kirkham, from the network security company Palo Alto, says the RBA attack should be a wake-up call for other agencies and he was not surprised to hear about it.

"This sort of attack is sadly becoming very commonplace these days," he said.

"We're seeing this sort of thing happen on a number of organisations, and the other thing we're seeing is that these attacks are becoming very targeted and crafted very specifically to go after organisations and quite often particular types of information.

They'll quite often start by sending some sort of a spear-fishing attack, an email which looks credible, which will then be a trigger to trigger some sort of malware on the computer of the person who receives it.

Network security company spokesman Tony Kirkham

"They'll quite often start by sending some sort of a spear-fishing attack, an email which looks credible, which will then be a trigger to trigger some sort of malware on the computer of the person who receives it.

"Once they install some malware on that machine, that gives them a foothold inside the organisation and that allows a person on the outside, malicious parties, to control a device on the inside of the network.

"That allows them to get access, quite often, to all the information on that particular machine and can be used as a launching point to get other devices and other information systems within the organisation."

The World Today contacted the Department of Defence in relation to national security issues amid concerns about ramped up attacks sponsored by China.

While the department says it does not comment on specific incidents, it did say that hacking is a constant threat, especially for the nation's businesses and economic institutions.

"At least 65 per cent of cyber intrusions on Australian computers have an economic focus," a Defence spokesperson said in a statement.

"Cyber intruders are looking for information on Australia's business dealings, intellectual property, scientific data and the Government’s intentions."

The Department of Defence says the Cyber Security Operations Centre estimates that at least 85 per cent of cyber intrusion techniques can be mitigated by adopting standard security procedures, including installing the latest patches to applications and operating systems and minimising administrative privileges.

Blokes still rule boardrooms, major super fund warns

By business editor Peter Ryan

A report out today shows the majority of Australia's listed companies now have policies to get more women into top corporate roles, but so far they have only managed to generate one woman for every six men in the country's top 200 boardrooms.

Accounting firm KPMG analysed 600 companies and found that almost all have a gender diversity policy in place or plan to introduce one.

ASX corporate governance guidelines on diversity are not mandatory, and the Australian Council of Superannuation Investors (ACSI) says the situation remains unacceptable.

As the world marks International Women's Day, the council is warning that quotas might be needed to get more balance in boardrooms.

ACSI president Gerard Noonan told AM that corporate Australia's commitment to diversity is disappointing given moves in Europe for 40 per cent female representation at the board level.

"Over the past year there has been some improvement, but it's pretty disappointing as an outcome because the top 200 companies in Australia, just over 15 per cent are women so that's up from 14 per cent last year," Mr Noonan said.

"At the same time at least two-thirds have less than two women on their boards and none has a majority. Even, oddly enough, in the health sector, where you've got an overwhelming majority of women working, it's still under 10 per cent."

The criticisms come as the ASX Group chose International Women's Day to release its diversity report which shows 196, or 99 per cent, of ASX 200 companies have adopted a diversity policy or explained why one is not in place.

However, Gerard Noonan says having a policy in the system or on a shelf is not good enough, and does not mean more women are getting into boardrooms.

"Look, it's a good thing to have a policy of that sort and we applaud that but in 2010 ASCI announced a benchmark of all companies in the ASX 200, that's the 200 biggest companies, having at least two women on their boards by 2014," he said.

"But at this rate, it's a very, very slow change. It'll be another decade before we get there let alone 2014."

ACSI's audit shows that an additional 24 women were appointed over the past year, meaning the target to have at two women on every ASX 200 board by 2014 will not be met.

"Men hold over 1,000 more board positions than women. In Australia there's about 1,250 men in the top 200 companies compared with about 230 women. So we've got a long way to go," Mr Noonan said.

ACSI has pointed to a report by European bank Credit Suisse showing the greater diversity resulted in higher average returns on equity, lower debt and better average growth over the course of the last six years.

AUDIO: Blokes still rule boardrooms, super fund warn

Mr Noonan warns that unless companies put diversity policies into action, it could call for regulatory intervention to mandate quotas.

"We say that if companies can't adapt to meet that 2014 benchmark without good reason - and it's a pretty modest benchmark - we may need to consider recommending that our members vote against re-election of incumbent boards if it comes to that," he cautioned.

"It'll be very difficult for us as a shareholder organisation not to consider calling at least for some regulatory intervention to see whether that can improve."

Topics: business-economics-and-finance, corporate-governance, management, women, australia

First posted 10 hours 5 minutes ago

Business lobby urges carbon tax compromise

By Business editor Peter Ryan

A major business lobby group is proposing a compromise solution to the political impasse over the carbon tax.

The Australian Industry Group says the fixed carbon price should be scrapped in favour of an immediate switch to an emissions trading scheme, with the price floated.

The group says that is a more practical alternative to the current carbon pricing model, as it will be difficult for the Coalition to unpick the tax if it wins government.

Listen to my interview with Innes Willox broadcast on this morning's edition of AM.

"We have to start with the reality here that both major political parties have said that they want to achieve a 5 per cent emissions reduction cut by 2020. Both parties are locked into that, the question is how they get there," explained the industry group's chief executive Innes Willox.

"So what we've proposed today is that we drop the carbon tax immediately - it's a dead weight cost on business at the moment - and move to an internationally linked emissions trading scheme which we're due to do in mid-2015 in any case."

Mr Willox says an immediate move to emissions trading could still be a prelude to removing carbon pricing altogether if the Coalition wins a majority in both houses of Parliament at the next election.

"The issue here is the axing of the tax, how would that occur, how long would it take, what cost would business have to incur in the meantime," he said.

"What we're proposing here is what we think are quite sensible strategies for all parties to reduce the cost on business while they work through to the next step."

Mr Willox says business would be very happy to consult with the Coalition on its direct action policies on carbon emissions, but would like to see some reduction to the cost impost on business in the meantime.

"If the Coalition wants to develop direct action further, we are obviously part of discussions with them about that, but it's a policy that is still being developed and is continuing to be developed," he added.

"The Coalition have made it very clear that they'll continue to consult on this and consult through the election period."

The Australian Industry Group says its proposal to switch immediately to emissions trading would be a face saving win-win for both sides of politics.

"This debate is going to gain momentum right through the election period, and it doesn't take away from either party putting forward their points about which sort of overall strategy is best, who's right, you know, all the political argy-bargy will occur in any case," Mr Willox said.

"This is a sensible policy approach which gives both parties the out, and it also gives some business some certainty."

Innes Willox says the group has put forward its proposal to both major parties, but will engage in further consultation to convince them of its merits.

"We believe this gives both major parties about 80 per cent of what they want and does help us move towards reaching that emissions reduction target that both have committed to," he added.

UBS Libor cheats targeted Australia's bank bill rate

By Business editor Peter Ryan

It's been revealed that Australia was targeted in a strategy by the Swiss bank UBS to manipulate benchmark interest rates around the world.

The Australian angle is briefly mentioned in an internal investigation by UBS into the LIBOR rate fixing scandal which erupted in Britian last year.

While the corporate regulator ASIC is probing the attempted manipulation, financial market authorities are confident about the integrity Australia's benchmark rate mechanism.

The revelations are buried in a footnote on page 38 of a report by the US Commodity Futures Trading Commission which points to a culture of manipulation on a daily basis going back to 2005.


The Australian Securities & Investments Commission is known to have ramped up its inquiries with UBS since the the allegations moved from the British LIBOR scandal to those about Australia's bank bill swap rate or the BBSW.

But the Australian Financial Markets Association which represents market participants says the intregity of Australia's benchmark rate has not been compromised.

Read the full report here.

Executive director David Lynch told The World Today that Australia's BBSW operates differently from LIBOR:

DAVID LYNCH: In the Australian situation, it's quite different to LIBOR in the UK or LIBOR in Europe insofar as when you compare the actual outcomes from LIBOR and BBSW, you see the range of rates which might be contributed to LIBOR are quite broad, up to 40 basis points in terms of the range of rates that might be submitted, whereas in the case of BBSW, because of its structural design, the rates that are accepted for a calculation of the rate tend to be within one basis point of each other, in other words 100th of a percentage point of each other.

So the ability for a submitter to influence the rate inappropriately is very narrow in the context of BBSW, it's not material.

PETER RYAN: So while the LIBOR rate is based on a range of rates which tend to be theoretical, the bank bill swap rate here in Australia is much closer to a fixed rate.

DAVID LYNCH: Yes, I mean insofar as what banks and LIBOR are asked to provide submissions on are the rates which they individually could borrow in markets, so it's a matter of opinion because it's not an actually traded market.

Whereas in the Australian system, analysts are asked to provide their observations on where the market is trading, so in effect, each of the up to 14 panellists in BBSW should be providing the same rate.

PETER RYAN: But clearly this is an important development, given the whole LIBOR scandal coming out of Britain.

DAVID LYNCH: The LIBOR scandal and the nature of the issues there are quite different to the process here but the point we've always made is that all rate sets involve some element of risk. The question is how effectively you manage the risk in relation to that process.

Now in terms of submissions to BBSW, given the statistical characteristics of the rate and the structural design of the rate, it really is a very small scope for rates to be unduly influenced.

PETER RYAN: So you're saying that Australians can be very confident that the bank bill swap rate here in Australia is a true reflection of the market forces.

DAVID LYNCH: Yeah. What the BBSW rate is, it's a set of observations on where the market is trading, and in terms of submissions that we receive, they are sufficiently narrow in terms of variance to give a high level of confidence in relation to the accuracy of what's been observed.

Last year the British bank Barclays was caught manipulating the London Interbank Offered Rate - or the LIBOR - which indicates the rate for unsecured borrowing between banks.

A scandal erupted and Barclays was hit with more than 400 million dollars in fines.

Soon other banks started coming clean including the Swiss bank UBS - which settled with US, British and Swiss regulators for $1.5 billion.

Anything wondering if such bad banking behaviour was the tip of the iceberg had their cynicism confirmed by an internal investigation by UBS which reveals ofher markets around the world including Australia were targeted up by UBS bankers.

The World Today contacted UBS for more information but at the time of broadcast the ABC's calls had not been returned.

The Age and Sydney Morning Herald go tabloid as former editor gives hard copy weekday editions five years

By Business editor Peter Ryan

Commuters in Sydney and Melbourne found they had a little more elbow room this morning.

In what's more of a survival strategy than a cosmetic overhaul, the Sydney Morning Herald and The Age hit the streets today in a new tabloid format.

The larger broadsheet layout has been dumped for weekday editions as Fairfax Media fights to hold onto readers and advertisers in a digital media world that's forced the closure of papers around the globe.

Listen to my story from this morning's edition of AM.

Apart from the size - which Fairfax prefers to call "compact" - one of the biggest changes puts sport on to the back page, and in a newspaper first, brain imaging research was used to track what readers really want, according to Fairfax's head of advertising strategy, Sarah Keith.

"There was a concern that you think well maybe you're using the left brain, you know, sort of more detailed side of the brain when you read a broadsheet but maybe with compact you're just sort of skimming over things," Ms Keith told AM.

"Actually what we discovered is that the brain was in a very, very balanced state when reading the compact, which was great news, which from my point of view when I'm going out to talk to advertisers are saying look, actually your ads are going to be more engaging in this product."

A former editor of The Age, Mike Smith, says the long-resisted switch is now a matter of survival with the rivers of gold from classified advertising now a trickle.

"This is the most significant physical change to the Fairfax papers since they took ads off the front page and it took a world war to do that and it's taken a threat to their very existence to make them go tabloid," Mr Smith said.

And Mike Smith agrees Fairfax's biggest challenge is protecting the values of the old broadsheet brand, such as quality and high editorial standards.

"There are already some people who say that the Fairfax papers are tabloid papers in broadsheet clothing, and they've been very careful in their marketing of these papers that are coming out to try and protect the brand and persuade and convince people that nothing is happening to the journalism, just the size."

The former editor in chief of the Sydney Morning Herald, Peter Fray, who was ousted last year as part of Fairfax's restructure, says if the tabloid switch doesn't work, week-day printed editions of The Age and The Sydney Morning Herald might disappear within five years.

"If you can deliver what audience want in any form and any channel then you may have a future. My gut feeling is that we may not see a printed Monday to Friday in say five years. Some people say it's much sooner than that, one to two years."

Today's changes are just the start - next comes the digital pay-wall later this year and the closure of printing presses in Sydney and Melbourne, which will see The Age and the Herald published at less expensive regional sites.

TEN in crisis as James Warburton walks plank as chief executive

In a new crisis for the Ten Network, James Warburton was tonight sacked as chief executive.

The troubled television network says Mr Warburton, who was controversially recruited from the rival Seven Network, had been "given notice of termination."

A statement from chairman Lachlan Murdoch said Mr Warburton's sacking was effective immediately and he would be replaced by News Corporation executive Hamish McLennan who will join Ten next month.

James Warburton was recruited from Seven amid fanfare and legal action that delayed his appointment until January 2012.

Mr Warburton was forced to take "gardening leave" after a non-compete clause in his Seven contract was enforced, meaning his Ten career rivalled his time between jobs.

Mr Warburton's tenure at Ten was dragged down by a weak advertising market, poor ratings and full year loss of $12.9 million in October last year.

Ten has also suffered a share price plunge from $1.44 per share in April 2010 to 29 cents at the close of trade on Friday.

Despite the brutal nature of the sacking, chairman Lachlan Murdoch praised the man he lured - to the anger of Seven chairman Kerry Stokes and then chief executive David Leckie.

"The Board would like to thank James Warburton for his hard work and contribution during what has been a difficult period for the Company and for the broader media sector. He steps down with TEN’s best wishes," Mr Murdoch said.

Mr Murdoch signalled he is putting hopes of a turnaround in the hands of new chief executive Hamish McLennan.

“The Board is delighted to have been able to attract a world class CEO with a strong track record to lead TEN," Mr Murdoch said.

Ten's executive general manager Russel Howcroft will act as chief executive until Mr McLennan assumes the top job.

Reserve Bank signals frustration with high Australian dollar

By Business editor Peter Ryan

The Reserve Bank has signalled its frustration that the Australian dollar remains stubbornly high despite recent interest rate cuts.

In the minutes from its February meeting when the cash rate was held steady at 3.0 per cent, the RBA board noted the past year's 1.75 percentage points reduction had failed to put a dent in the dollar.

While noting that "interest-rate sensitive parts of the economy had shown signs of responding to these lower rates" and that "further effects could be expected over time" the RBA says the dollar is refusing to take the monetary policy medicine.

Members note in the minutes that "the exchange rate remained high despite the terms of trade having declined significantly about 18 months earlier."

In public statements over the past year, RBA officials including the governor Glenn Stevens have expressed concern about the high currency given the impact on Australian exporters.

Since the February meeting, the RBA's Quarterly Statement on Monetary Policy has downgraded economic growth to 2.5 per cent by June this year while warning that unemployment is likely to rise.

In the expectation of higher unemployment and a comfortable inflation outlook, the Board said there was "scope to ease policy further, should that be necessary to support demand."

While the Board said policy was "already accommodative" and "stimulus was continuing to work its way through the economy", some economists believe the cash rate will be cut again at the RBA's March meeting.

With global conditions improving in recent months, the RBA says the "perceived risk of extremely adverse conditions had declined".

The slowly improving confidence, the RBA says, has seen previously conservative investors moving back into high-yielding assets including the sharemarket.

The RBA noted that global share prices had increased by 13 per cent in 2012 and by 7 per cent since the December board meeting.

On bank funding costs, the RBA noted that while costs had fallen significantly it "would take some time for these lower bond yields to flow through to aggregate funding costs."

The RBA minutes back last week's claim from the Commonwealth Bank's chief executive Ian Narev that banks were still not in a position to pass on independent rate cuts to borrowers.

CBA boss carefully signals independent rate cut as "plausible over time".

By Business editor Peter Ryan

The head of Australia's biggest and richest bank has flagged the possibility of an independent interest rate cut for borrowers - but not just yet.

Ian Narev, chief executive of the Commonwealth Bank, told the ABC's AM  program that a rate cut outside official Reserve Bank decisions is "plausible over time".

Listen to the interview broadcast this morning on AM.

The carefully-worded signal on the hot issue of borrowing rates came as Commonwealth Bank yesterday revealed another record half year profit of $3.78 billion.

Mr Narev told AM there was constant pressure to deliver an independent rate cut but warned a still fragile global economy was a major consideration.

"One swallow doesn't yet make a summer so it's very important for us to see these conditions go on into this year. If we do that I think there'll be a steady rebuilding of confidence in Australia," Mr Narev said.

"We'll continue to do what we've done right through which is balance the interests of all the different stakeholders and see what our competitors are doing and consider our pricing in those contexts."

When pressed on whether an independent rate cut imminent because of falling borrowing costs, Mr Narev gave AM  a highly-qualified response:

"I'm not allowed to give forward projections as you know on pricing but it remains to say the Reserve Bank rate is one factor we take into account and it is quite plausible over time that moves could be independent of any move by the Reserve Bank."

Mr Narev admitted borrowers had a right to question monster profits and to ask when the series of out-of-cycle rate rises would be returned to customers. All banks hiked rates independently in the leadup to and after the collapse of Lehman Brothers as the cost of global funds surged.

"I completely understand that borrowers in light of the environments we've been and the fact that bank's funding is pretty complicated, there are a lot of borrowers out there who would obviously like to pay less and that's something that we obviously do understand and one of the things we take into account when we are making our pricing determinations," Mr Narev said.

Mr Narev said the Commonwealth would not be able to consider independent rate cuts until it was able to replace long term funding sourced prior to the global financial crisis with less expensive funding.

Like other banks, the CBA is also in a cut-throat war to retain and lure depositors who now rank as highly as borrowers.

Mr Narev was also asked if he was more relaxed given the apparent easing anxiety about the global economy, with stability in China and less bad news from Europe.

"I sleep okay at night generally because I have to but there's no doubt that when volatility around the world is a bit lower it makes it a little bit easier for us but we can't take that for granted because we've learnt in the history of the financial crisis things still can change pretty quickly. "

Australia becoming a nation of smartphone "addicts", report warns

A report out today confirms what many already suspected - Australians are becoming addicted to their smartphones.

The survey of smartphone users by the technology company Cisco reveals that the daily ritual for Generation Y Australians begins with texting.

Many of those surveyed admit they are checking for messages and updates at least once every thirty minutes and become anxious when their phone goes missing.

Cisco's chief technology officer Kevin Bloch says many people, especially from Gen Y, are crossing the border into a smartphone addiction.

Listen to my interview broadcast on The World Today.

"Literally as they open their eyes the alarm clock, which is probably on their phone, goes off. They reach out for the alarm clock, look at their updates, maybe on Facebook, maybe Twitter etc, maybe go through their email, and then they get out of bed," he observed.

"Nine out of 10 of the survey of 3,800 people under 30 years old are addicted to their smartphone and, in fact, one out of five are checking their smartphone every ten minutes."

Mr Bloch says the addiction to smartphone use is so strong for many that they have developed dangerous habits, such as texting while driving.

"It's happening subconsciously, and one out of five people are texting while they're driving, and it just speaks to this addictive, compulsive, behaviours that we're seeing," he said.

"You know, can you not put your phone down whilst you're in your car? I mean, we're talking not just about using the phone for voice, we're talking about texting while you're driving, and that's a really dangerous thing."

The Cisco report finds that it is not only Gen Y who are addicted to their mobile devices, but that the type of use varies with age.

"For example, under 30s, most of whom may not be married, their addiction will be just to be connected to their social lives, some of whom also to be connected to their work lives and so on," Mr Bloch observed.

"As you go on in life and you're established, you've got a family and so on, the addiction changes. It may be you're worried about your family so you want to stay connected and so on, but there will be different types of addictions or compulsive behaviour.

"But I think what is becoming consistent is that that smartphone is becoming the central point of contact to other services and people no matter what age you are."

Kevin Bloch says when someone's smartphone goes missing or it even starts running out of battery, they often start getting anxious.

"In the report they talk about, you know, the human body's got 206 bones and the smart phone's your 207th bone, and you'll know about it if you don't have it," he joked.Cisco's report has also found gradual changes in the etiquette surrounding mobile phone use, with more people now using their devices at the dinner table and in bed.

"Three-quarters of the people surveyed use their phone in bed, and the question about romance and all that sort of thing comes up," Kevin Bloch said.

"I think 46 per cent will use their smartphone whilst at the dinner table, and if most of the table are texting while you're trying to eat I would consider that rude, and with my family I definitely try to stop it.

"I think it does have a whole lot of negative impacts on your personal life and your personal relationships, no doubt."

Mr Bloch says people need to re-evaluate their smartphone use.

"I think people need to take a step back and understand from their own personal perspectives how addicted they are, like any drug, I
guess if I could put an analogy on it," he advised.

"Because, you know, it could touch on or infringe on things like your manners, all the way through to your work-life balance, all the way through to your personal safety."

Reserve Bank downgrades growth forecasts; warns unemployment set to rise

By Business editor Peter Ryan

The Reserve Bank has once again downgraded its growth forecast for the Australian economy while warning that unemployment is likely to rise.

In the its quarterly statement on monetary policy released today, the RBA has also confirmed the government's recently-abandoned pursuit of a budget surplus also weighed on economic growth.

Growth has been revised downwards to 2.5 per cent by June this year after the most recent statement in November flagged an earlier downgrade to 2.75 per cent.

The RBA says the revision was prompted by the slightly weaker outlook for both mining and non-mining investment, signalling that both sides of the two speed economy are slowing.

The statement also underscores the multiple challenges facing the Australian economy.

"Mining investment is expected to peak, both fiscal consolidation and the persistently high level of the Australian dollar will weigh on growth and there is little sign of a near-term pickup in non-mining investment."

The RBA says the weakness has been reflected across the economy with lower spending on machinery and equipment with the biggest downward revision concentrated in the coal sector.

The Reserve Bank flagged in previous statements in the second half of last year that the investment phase of the resources boom would peak earlier than expected.

However, the RBA predicts a recovery in growth to just under 3.0 per cent over 2014 while warning that growth in public demand will be "very subdued" over the next two years as federal and state government cut spending as part of fiscal consolidation.

Today's statement supports yesterday's official employment figures for January which showed unemployment steady at 5.4 per cent but 9,800 ful time jobs replaced by around 20,000 part time and casual positions.

"Employment growth has remained subdued in recent months, with the unemployment rate drifting gradually higher.

"Employment is expected to grow only modestly in the near term but to remain below the pace of population growth in the near future."

The RBA has given few hints on future cuts to the cash rate apart from repeating that the current inflation outlook would "afford scope to ease policy further" and that the current setting of 3.0 per cent remained "appropriate".

However, the RBA has flagged a number of provisos to its forecasts including the likelihood that the United States will avoid the so-called fiscal cliff and that there are no further shocks in the Eurozone crisis.

In a special final section of the statement, the RBA addressed criticism that some forecasts have been wrong, claiming that 70 per cent of the time, the central bank gets it right.

ACCC gives draft approval to Qantas-Emirates alliance but orders airlines to maintain minimum capacity on Aust NZ routes

Australia's jobless rate in surprise fall to 5.2 per cent. Dollar surges, February rate cut uncertain.

Reserve Bank cuts cash rate to 3 percent; economists say more cuts on the way

RBA tipped to deliver early Christmas present

By Business editor Peter Ryan
　
The Reserve Bank appears likely to deliver an early Christmas present when it holds its final meeting of the year tomorrow.

Most economists think the RBA board will cut the cash rate to 3.0 per cent as a buffer against shrinking commodity prices and a slowing economy.

Financial markets are factoring in an 80 per cent likelihood of a rate cut tomorrow and 19 of the 28 economists polled by the Bloomberg wire service agree.

A 0.25 percentage point cut would take the cash rate to 3.0 percent - the lowest level since April 2009 at the height of the global financial crisis in the wake of the Lehman Brothers collapse.

The RBA board defied predictions of a rate cut last month on Melbourne Cup day when the cash rate was left on hold at 3.25 per cent.

However, most economists believe the RBA has now had time to assess the impact of 1.25 percentage points in cuts since November last year and will see a lower cash rate as critical given falling commodity prices and slowing economic growth.

The RBA has been managing expectations about the longevity of the mining boom in recent months and recently warned that the resources boom will peak earlier than expected.

With the mining phase slowly depleting, the RBA needs to lower rates to ensure that other areas such as business investment, housing construction and retail spending fill the growth gap.

At the same time, the RBA will be monitoring the attitude of cautious consumers who continue to pay down debt rather than spend in the pre-Christmas period.

In its most recent statement on monetary policy, the RBA downgraded its outlook for the Australian economy and put growth as "a little weaker" at just below 2.75 percent in the year to June 2013.

That view is expected to be confirmed in Wednesday's national accounts from the Australian Bureau of Statistics where growth of 0.6 percent is expected in the September quarter and 3.2 percent over the year.

While that growth would be the envy of US and Eurozone economies, it signals a weaker growth outlook for Australia and another reason for a lower cash rate.
　

Mining boom to peak earlier than expected, Reserve Bank warns as it trims growth forecasts

By Business editor Peter Ryan

The Reserve Bank has marginally downgraded its growth outlook for the Australian economy and says the resources boom will peak earlier than expected.

In its quarterly statement on monetary policy released today, the RBA has put growth in the year to June 2013 as "a little weaker" at below 2.75 per cent before picking up to nearly 3 per cent in 2014.



Australian dollar falls briefly on RBA statement

The previous forecast had tipped growth as much as 3.5 per cent by June next year.

 "Most of this revision to the outlook is accounted for by a change in the profile for mining investment which is now forecast to peak a little earlier and at a lower level than had been earlier expected," the RBA says.

"This change reflects the reappraisal of spending plans in the coal and iron ore sectors as well as a reassessment of the profile for spending on some large and complex LNG projects."

The RBA also warned that the outlook for growth is "sensitive to prospects for mining investment and the timing and extent of the anticipated recovery."

However, the Reserve Bank believes mining exports are still forecast to "grow substantially" given the increased capacity from the current pipeline of investments.

The RBA's statement sees inflation forecasts largely unchanged with underlying inflation expected to be close to 2.5 per cent over the next year.

Headline inflation could rise above 3 per cent by the first half of 2013 through the combined impact of the carbon price and volatility in fruit and vegetable prices.

The Reserve Bank also highlighted the looming "fiscal cliff" in the United States as a key risk to the global economy.

In a special section of the statement, the RBA said the automatic triggering of spending cuts and tax increases "would be the largest reduction in the federal budget deficit in a single year since 1969."

"Such a rapid fiscal reduction would result in annual average growth in the United States 3 to 4 percentage points lower than otherwise in 2013."

The Reserve Bank believes the threat of such a significant contraction, leading to a recession, means policy makers will ensure it won't proceed to its full extent.

However, the RBA has signalled that legislative agreement between Republicans and Democrats "will require agreement" to minimise the impact of the fiscal cliff.

The RBA has also downgraded its outlook for global growth to 3.25 per cent in both 2012 and 2013.

The "fiscal cliff" aside, the RBA has noted growth "at a moderate pace" in the United States and signs that China has stabilised.

The Reserve Bank noted that Australia's cash rate remains appropriate after leaving rates unchanged at 3.25 per cent on Tuesday.

The Australian dollar fell to a low of 103.78 US cents after the statement was released to financial markets after reaching a high earlier in the day of 104.45 US cents.

Rupert Murdoch stares down protest vote; tells unhappy investors to sell, take profits and leave

By Business editor Peter Ryan

　

Rupert Murdoch has stared down a protest vote over his controversial dual role as both chairman and chief executive of News Corporation.

Some of the media company's investors had questioned Mr Murdoch's independence and judgement in the wake of the phone hacking scandal which forced the closure of the News of The World.

Despite the backlash, the majority of shareholders at this morning's annual general meeting in Los Angeles rejected calls to revamp the News Corporation board and reduce the power of the Murdoch family.

Here's my analysis broadcast on this morning's edition of AM.

The backlash over Mr Murdoch's reign as both chairman and chief executive has been long running, and a similar proposal to split the dual roles was also unsuccessful at last year's annual meeting.

However, Mr Murdoch's handling of the phone hacking scandal in Britain provided some fresh amunition for unsettled investors given the multiple police investigations with 60 arrests so far.

Rupert Murdoch confronted the protest vote right from the start of his opening comments and defended his powerful roles as "good" for the company.

Mr Murdoch repeated earlier contrition for the phone hacking scandal and admitted it had been a "difficult" period.

"We've acknowledged the serious wrongdoing that occurred at some of our publications in the United Kingdom. As a result we've had to work hard to make amends, very hard," Mr Murdoch told shareholders.

But the 81 year old founder of News Corporation maintained there's no basis to suggest News Corporation acted wrongly.

"Just as important, we seized the moment as an opportunity to strengthen our governance and our organisation in key ways. We've imposed strict, uniform policies with centralised oversight. We've improved employee training.

"We've also imposed more auditing and testing so that we can fix any problem by identifying it early."

The protest vote came from a number of US pension funds with the concerns been backed by the two main shareholder advisory services, ISS and Glass Lewis

In addition to splitting Mr Murdoch's role to improve independence, there was also a defeated proposal to remove both James and Lachlan Murdoch from the News Corp board given perceived conflicts of interest.

Julie Tanner assistant director of socially responsible investing at Christian Brothers Investment Services said the company needed an independent voice to counter the power of the Murdochs and the fallout from the phone hacking scandal.

"The failure of internal controls has had real and lasting repercussions. It (inaudible) a newspaper, launched criminal investigations, cancelled the BSkyB acquisition, eroded public trust and tarnished the company's reputation," Ms Tanner said.

"That these revelations took years to uncover and address firmly suggests the need to rebalance the power sharing structure. We hold firm that separation would provide greater accountability of management to shareholders and greater independent oversight of management, including the CEO by the board."

While the investor concerns were politely received by Mr Murdoch, the proposals to dilute Rupert Murdoch's power, unseat his two sons and change the dual voting structure were never going to succeed because the Murdoch family controls around 38 percent of voting shares.

But Mr Murdoch did say his role and chairman and CEO are reviewed on an annual basis - which means the 81 year old is likely to face a similar investor backlash at next year's AGM

Coinciding with today's meeting was a report from the Financial Times that Rebekah Brooks, the former head of News International who is awaiting trial in relation to phone hacking allegations, has received a payout from News Corporation of more than A$11 million.

News Corporation shares trading in New York closed 1.7 percent higher to close at US$

24.77 a share.

Twitter: @peter_f_ryan

　

European banks to sell US$4.5 trillion in assets if debt crisis escalates

By Business editor Peter Ryan
　

European banks could be forced to sell as much as US$4.5 trillion in assets if the sovereign debt crisis escalates.

The International Monetary Fund says time is running out for European policy makers to implement a single supervisory system to firewall the already fragile banking sector.

According to the IMF's Global Financial Stability Report, the US$4.5 trillion asset contraction is up 18 percent on an earlier estimate in April of US$3.8 trillion in a "weak policies scenario".


A failure to introduce fiscal tightening or a single regulatory system for banks could impact 58 banks across the EU from small institutions to giants like Deutsche Bank.

Even without a worst case scenario - a fracturing of the Eurozone that could see the redomination of currencies - the IMF is predicting a reduction of bank assets of US$2.8 trillion as long as governments follow up on their current committments.

The IMF has estimated that in the year to June, European banks deleveraged by more than US$600 billion.

The IMF's financial counsellor and director Jose Vinals warns the forces of financial and economic fragmentation have widened.



Jose Vinals, IMF Financial Counsellor & Director

"The stakes are high. Confidence is still very fragile and risks have increased when compared to the last report in April," Mr Vinals said.

"Actions taken by the European Central Bank have helped remove investors' worst fears. But these policies will need to be further built upon at both the national and euro area level."

The IMF's warning comes just a day saying the risk of a serious global slowdown was "alarmingly high".

While emerging markets have weathered the fallout from Europe so far, the IMF warned that many countries in eastern Europe were vulnerable.

The IMF says emerging Asia nations also need to be on guard to avoid any European spillover.
　
　
Twitter: @peter_f_ryan
　
　

IMF warning - the world remains a dangerous place

By Business editor Peter Ryan

The latest global outlook from the IMF is the usual weighty document - this time around 100 pages - but you don't need to read beyond the executive summary to get the message that the world remains a dangerous place.

Within the first few paragraphs, the IMF says the global economy has "deteriorated", growth  projections have been "marked down" and that risk factors have become "more elevated".

And there's a more disturbing line, signalling that even the IMF can't be sure even a medium term recovery is in sight:

"A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component."

Listen to my analysis broadcast on The World Today.

As a result, the IMF now expects the global economy to grow 3.3 percent this year - down from an earlier prediction of 3.5 percent.

The IMF says next year's forecast is "sluggish" - it puts the risk of a serious global slowdown as "alarmingly high" and warns confidence is "exceptionally fragile."

The IMF's chief economist Olivier Blanchard says emerging Asia, including China, is caught in an spillover - caused in large part by the deepening debt crisis in Europe.

"Because the world now is so interconnected, what happens in one part of the world has an effect on the rest of the world and so all these things are combining to slow down growth, " Mr Blanchard said in Tokyo.

"To avoid a sharp downturn, it's very clear what's needed is that policymakers take the right decisions. So if you look at Europe, the eurozone now has put in place, in principle, an architecture which is very coherent, the problem is implementation and they really have to implement it, that's the key."

The other risk for the world, according to the IMF, is what's known as the "fiscal cliff" in the United States.

Olivier Blanchard has called on Republicans and Democrats to agree on ending the congressional gridlock over planned tax increases and steep spending cuts that could trigger a double dip recession.

"In the US we're getting closer to this thing called a fiscal cliff, which would be a catastrophe if it happened that quickly. So here it's clear that there has to be put in place a fiscal plan, not only for this year but for coming years, which is credible," Mr Blanchard said.

Matt Sherwood, head of investment research at fund manager Perpetual, has been predicting the global slowdown, but even he's surprised at the IMF's direct language.

"Things like fragility, like damaging, and they were unusually blunt, particularly on governments and how they've consistently underestimated the damage done by raising taxes and cutting spending. So it was actually a very unlike IMF kind of statement," Mr Sherwood told The World Today.

Matt Sherwood says the IMF is also warning that the deep austerity seen in Europe could contribute to a new global recession.

"I think really what the governments were initially saying was that if we wear a bit of pain in the short term we will get economic sunshine after 12 months or so," Mr Sherwood said.

"I mean Greece was originally forecast to return to growth in 2013 and those kind of forecasts when you have something like an 8 per cent spending cut in an economy where the government is 40 of the economy, I mean those sort of forecasts are quite farcical, and I think the IMF's come out pretty hard against governments for consistently underestimating what they're actually doing to the economic growth profile.

"As a result it's actually given quite a bit of ammunition to critics of austerity, particularly in Europe."
Australia's growth is only expected to slow marginally, much less than other developed nations, being still supported by the resources sector.

But Matt Sherwood says the Treasurer Wayne Swan shouldn't be complacent especially about achieving a budget surplus.

"We suspect that they're going to miss the surplus by around $10 billion this financial year and as a result, if they want to achieve it under the current environment they'll need to find more spending cuts," Mr Sherwood said.

"The problem of course is the economy is already slowing, so if you do more spending cuts and you raise more tax revenue, that slows the economy even further.

"And so we think it might be a good idea for the Government just to abandon this idea of a fiscal surplus for financial year 2013 and just achieve you know a modest deficit."

A closely watched factor will be Australia's jobless rate, which could tick up to 5.3 per cent when the ABS releases the official reading on Thursday.

Twitter: @peter_f_ryan

Glenn Stevens defends RBA record on corruption probes

By Business editor Peter Ryan and staff

Reserve Bank governor Glenn Stevens has given a lengthy rebuttal of allegations that the central bank covered up a note-printing scandal facing two of its subsidiary companies.

Former executives from two firms owned by the RBA are facing allegations they paid bribes to win contracts overseas.

Mr Stevens has confirmed one of the agencies, Securency, only called in the Federal Police once it learned a newspaper was planning to run a story on the allegations.

He has told the House of Representatives Economics Committee that, overall, the RBA wanted the allegations looked at because of precedents with other government agencies.

The Age newspaper and the ABC's 7.30 program has reported claims of a cover-up of bribery allegations made against Securency and Note Printing Australia.

The RBA's former deputy governor, Ric Battellino, was aware of the allegations two years before they became public.

He says he did not tell an earlier parliamentary committee what he knew because a whistleblower had asked for secrecy.

"If I have one regret about all this, it's the fact that the bank or myself put his interests ahead of our own," he said.

Read Glenn Stevens' statement here

The appearance of Mr Stevens comes as he is being touted as a contender to take the top job at the Bank of England.

Mr Stevens is highly regarded worldwide after helping steer Australia through the global financial crisis.

Listen to my report from this morning's edition of AM.



http://publicappointments.cabinetoffice.gov.uk/


The speculation that Mr Stevens is in the running for the UK central bank's top job is based on a report from the Sunday Times newspaper in London.

It quotes unnamed sources who say Mr Stevens has been approached by Britain's treasury department.

Applications for the job close at 6:30pm (AEDT).

According to the advertisement, the new Bank of England governor will be required to implement "major reforms".

Mr Stevens is widely regarded as the most successful central banker in the developed world, so he has a resume to match the job description.

However, there are questions over whether he would be willing to accept a large pay cut to take on what is arguably a tougher role than his current position.

Mr Stevens earns just under $1 million a year, making him much better paid than his counterparts at the US Federal Reserve, the European Central Bank and the Bank of England, where the governor's role comes in around $480,000 a year.

Another reason it is being regarded as an unlikely move is that Mr Stevens would have to edge out some high-profile local candidates such as the Bank of England's deputy governor Paul Tucker.

Mr Stevens's seven-year term as the head of the RBA expires in September next year.

The Reserve Bank says it has no comment on the reports.

Twitter: @peter_f_ryan