Reserve tipped to bump up rates

Homeowners face finding another $50 a month to pay the mortgage, with the Reserve Bank tipped to lift official interest rates again today as it battles to dampen house prices and keep inflation pressures at bay.

A quarter percentage point rise this afternoon would mean official rates would have climbed 1.25 percentage points since October, adding more than $240 to the monthly repayments on a $300,000 mortgage.

It would be the biggest run of increases in a 12-month period since the Reserve took the official cash rate from 5 per cent to 6.25 per cent between November 1999 and August 2000.

But the decision could be a close call, with signs of softness in the retail and building sectors lifting expectations the Reserve may wait at least another month before moving in the week before Treasurer Wayne Swan hands down the Federal Budget.

At least mortgage holders may be saved from a “super-sized” lift to their repayments, with the NAB yesterday saying it would not increase its rates more than any move in the official cash rate. Its recent policy of matching rate rises had led to more customers.

That prompted Mr Swan to challenge other major banks to follow NAB’s lead.

TD Securities senior strategist Annette Beacher expects the Reserve board to hold rates today.

But Macquarie Bank rate strategist Rory Robertson said the chance of a rate rise was about 80 per cent.

“Interest rates here remain unusually low, our jobs market is strengthening, China and bulk-commodity prices are booming, so, too, local home prices, and the world’s biggest economy increasingly is getting back on its feet,” he said.

A new survey from Dun and Bradstreet of business executives out today shows sales, growth, employment and capital investment expectations all rising. 

Source  :  www.thewest.com.au

Advertisement

Read Full Post »

RBA lifts rates again

There’s more pain on the way for Australia’s borrowers with the Reserve Bank today raising interest rates for the third time in as many months.

As widely tipped, the central bank lifted its key cash rate by 25 basis points to 3.75 per cent following its monthly board meeting. It’s the first time the RBA has lifted rates three months in a row. (Click here for economists’ reaction, including Michael Pascoe and Peter Martin.)

”In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery,” RBA Governor Glenn Stevens said in a statement accompanying the rates verdict. The central bank’s ”gradual” increases in rates will ”work to increase the sustainability of growth in economic activity,” he said.

For a typical mortgage holder on a $300,000 mortgage, today’s rate rise will add about $47 to monthly repayments, assuming commercial banks match the RBA’s move. Officials for most of the major banks this afternoon said their rates policies were under review.

The Reserve Bank has made regular public comments in recent weeks that it sees no need to keep interest rates at ”emergency” levels as the economy rebounds from a slowdown during the past year. Ric Battelino, the RBA’s deputy governor, last week said the economy’s growth is likely to extend ”for a few more years yet.”

More to rises come

Still, the economic data continue to provide mixed readings. A measure of manufacturing activity in November out today showed the sector continues to grow with companies adding jobs, although the stronger Australian dollar slowed the pace of expansion.

Overall building approvals, meanwhile, surprisingly fell 0.6 per cent in October, according to other figures out today. A 5 per cent gain in approvals for private homes was countered by a 19 per cent drop in permits for flats and townhouses.

Even with today’s rate increase, the Reserve Bank’s efforts to tighten monetary policy are likely to be far from over.

”The big change in this statement was their reference to the increases so far as being material,” ANZ’s head of Australian economics Warren Hogan told Reuters.

”I read that as implying that they’re ready to now sit back and watch how these increases affect the economy. And the hurdle for further rate hikes will be much higher than we have seen so far.

“So I think our view that they’re going to 4 (per cent), 4.25 then sit there for much of the year is the right one. There’s every chance they’ll do it in February and March, although I wouldn’t be surprised if it’s dragged out over a number of months.”

JP Morgan’s Chief Economist Stephen Walters agreed that the RBA may make it four rate rises in a row: “With inflation likely to creep up, and the worst in the economy having passed, there is no need to keep rates at very expansionary levels.”

“We think they will again lift rates in February,” Mr Walters

said. ”The RBA does not meet in January, but I think they will hike when they return after the break. The word ‘gradual’ is still there in the RBA statement and I think they will start going slow in lifting after February.”

Before today’s move, investors were betting that rates would rise to at least 4.75 per cent in a year’s time – equivalent to four more rate rises over the period. Three weeks ago, however, the betting was for rates to rise to 5.25 per cent, indicating confidence in the economy’s strength has recently diminished.

The RBA’s board is not scheduled to meet again until next February.

Political view

Treasurer Wayne Swan said the rate rise would pinch household funds.

”This is tough for families…when rates go up it has an impact on the family budget,” Mr Swan told reporters.

He took aim at old comments from new Opposition Leader Tony Abbott that the government’s billion-dollar stimulus had led to interest rates rises.

”That is laughable and it comes from a political leader who is prone to making erratic statements,” Mr Swan said.

”Mr Abbott is in denial of the fact that this country has performed well in the global recession.”

Even with the latest jump, these rates were last seen in 1967, Mr Swan said.

Mild downturn

A year ago, the Reserve Bank was in the midst of a series of deep interest rate cuts as Australia joined other countries in attempting to limit the damage from the global financial crisis.

Last December, the RBA sliced one full percentage point from its cash rate, lowering it to 4.25 per cent on the way to a fifty year-low of 3 per cent by April. After a pause, the central bank has started to lift rates back towards more normal levels as fears of an economic crunch abate.

”The effects of the early stages of the fiscal stimulus on consumer demand are fading, but public infrastructure spending is starting to provide more impetus to demand,” Mr Stevens said in his statement today.

The jobless rate has been one of the surprises, with Australia’s unemployment holding well below 6 per cent when many had predicted a level in excess of 8 per cent. Business investment has also held up well in large measure due to the sharp rebound in China and India – leaving Australia as one of the few countries to start raising rates.

”Prospects for ongoing expansion of private demand, including business investment, have been strengthening. There have been some early signs of an improvement in labour market conditions,” Mr Steven said. ”The rate of unemployment is now likely to peak at a considerably lower level than earlier expected.”

The RBA believes economic growth ”is likely to be close to trend (in 2010) and inflation close to target.

Market response

In the aftermath of the rates news, the Aussie dollar initially dropped before recovering to about 91.5 US cents in recent trading, close to its level before the RBA statement.

Shares, also turned mildly lower before recovering to be about 0.2 per cent higher for the day with less than an hour of trading left.

Source :   www.theage.com.au

Read Full Post »

Swan slams ‘selfish’ CBA rate decision

Treasurer Wayne Swan has taken aim at Australia’s biggest home lender, labelling it selfish for lifting its mortgage and business lending rates. 

Other banks have refused to rule out following the Commonwealth Bank of Australia’s (CBA’s) surprise decision to lift its home and business loan rates by 10 basis points to offset higher funding costs.

The opposition said the government’s huge debt burden was putting pressure on interest rates, while a prominent market economist said it may force the Reserve Bank of Australia (RBA) to cut the official rate again to counter any impact from CBA’s move.

CBA said it took Friday’s decision “reluctantly”, but at a standard variable mortgage rate of 5.74 per cent, up from 5.64 per cent, it was still the lowest on the market.

The rate hike will add $18 a month to repayments on a $300,000 home loan over 25 years.

The bank said it had absorbed as much of its additional funding costs for as long as it could.

“Unfortunately, we have seen the bank’s wholesale funding costs remain high and continue to increase as previous long term funding matures and is replaced with new funding at significantly higher cost,” CBA group executive of retail banking services Ross McEwan said in a statement.

Such reasoning drew no sympathy from the treasurer.

There are ups and downs when it comes to those decisions over time, but there are few decisions I can think of that are more selfish than this one,” Mr Swan told reporters in Brisbane.

“I think Australians, rightly, will be furious with the Commonwealth Bank.”

Prime Minister Kevin Rudd echoed those sentiments during a speech to a business lunch in Brisbane.

“We are all in this together – businesses, workers, government and the Reserve Bank – and today’s decision by the Commonwealth Bank runs counter to this nationwide effort,” Mr Rudd said.

The other three major banks – ANZ, National Australia Bank and Westpac – said their rates were constantly under review.

NAB said it had no current plans to raise its home loan rate but noted “all Australian banks” had been incurring significantly higher funding costs for some time.

Opposition treasury spokesman Joe Hockey said the government was putting pressure on interest rates by running up a huge debt.

“Kevin Rudd and Wayne Swan feigned outrage about this interest rate increase, yet they are directly responsible for it,” Mr Hockey told reporters in Sydney.

“This is the beginning. You will end up with higher interest rates directly as a result of the spending binge of the Rudd government and the massive debt they are accruing.”

Home buyers may be enjoying the lowest mortgage rates in 41 years, but have already missed out on about 30 to 40 basis points of the RBA’s total 425 basis points of official rate cuts, with banks refusing to pass on the cuts in full because of the cost of funding.

For small businesses it has been even worse, being short changed by about 140 basis points.

The CBA’s decision comes in a week that saw massive boosts to both consumer and business confidence, as well as data showing sustained growth in home lending – sucked in by low mortgage rates and a more generous first home owners grant.

April mortgage data showed loan demand has grown for seven straight months to a 14-month high, as well as record demand from first home buyers and the strongest interest from investors in nearly two years.

It also showed that the banks have cornered more than 92 per cent of all loans – a 33-year high.

Westpac chief economist Bill Evans said CBA’s decision could well be countered by another cut by the RBA.

“If it does have an impact, particularly on confidence in the housing market, which has been the most encouraging source of recovery in the Australian economy, it may bring a rate cut back on the table at the Reserve Bank,” Mr Evans told Sky News

Source  :  www.thedaily.com.au

Read Full Post »

Australia stocks close at seven-month high

The Australian share market closed at its highest level in nearly seven months as better-than-expected local and overseas economic data heartened investors and boosted resources stocks.

At the 1615 AEST close, the benchmark SP/ASX200 index had lifted 60.9 points, or 1.56 per cent, to 3955.3, while the broader All Ordinaries index advanced 61.7 points, or 1.59 per cent, to 3949.6 points.

The last time the local market had closed at those levels was in mid-November 2008.

The local bourse rose as a narrowing current account deficit and improving trade position raised expectations that the Australian economy had managed to avoid a contraction in the March quarter.

Building approvals rose for the third consecutive month as low interest rates and grants from the federal government enticed home buyers.

Resources stocks have been lifted by data released by China on Monday showing that China’s manufacturing activity had expanded in May for the third consecutive month.

In the US overnight, better-than-expected readings on manufacturing, consumer spending and construction spending boosted Wall Street.

The Reserve Bank of Australia, which kept interest rates unchanged on Tuesday, also said there was evidence the global

economy was stabilising and the turnaround was clearest in China.                                                                                                                            

City Index markets strategist Alex Douglas said the positive data releases over the last few days were driving the market.

‘If we go back to yesterday, there was positive data from China.

‘That was backed up with some manufacturing data in the States overnight which was slightly firmer than anticipated,’ Mr Douglas said.

Locally, the building approvals figures were also positive.

‘So little bits of evidence like that of growth emerging – that’s helping to support the markets,’ Mr Douglas said.

In the resources sector, global miner BHP Billiton gained 96 cents to $36.70.

Rio Tinto jumped $2.67 to $69.00 after the company announced it had settled terms of iron ore contracts with many Asian customers.

Oil and gas producer Woodside Petroleum rose 88 cents to $44.90 as it said it planned to retain at least 50 per cent equity in the second and third stages of its Pluto liquefied natural gas (LNG) development at Karratha in Western Australia.

Santos firmed five cents to $14.90.

Among the major banks, Commonwealth Bank strengthened 17 cents to $36.33, Westpac surrendered 18 cents to $18.76, ANZ gave away 21 cents to $15.98, and National Australia Bank gained 28 cents to $22.80.

Investment bank Macquarie Group was up 91 cents at $36.30 as it said it was not aware of any reason or information not already announced that could have prompted a lift in its share price since late last week.

On Wall Street overnight, the Dow Jones Industrial Average index rose 221.11, or 2.6 per cent, to 8,721.44.

In the gold sector, Lihir slipped one cent to $3.30, Newmont lost 24 cents to $6.00, and Newcrest picked up 15 cents to $33.89.

The price of gold in Sydney at 1628 AEST was $US973.85 per fine ounce, down $US10.25 on Monday’s close of $US984.10.

Telco Telstra was off two cents at $3.07, and Optus-owner Singapore Telecommunications shed six cents to $2.50.

Retailer Woolworths ascended 60 cents to $26.00, and Wesfarmers, which owns Coles, was $1.09 heavier at $23.37.

In the media sector, News Corp was 25 cents richer at $14.68, and its non-voting stock improved 20 cents to $12.75.

Consolidated Media lifted three cents to $2.38, and Fairfax gained six cents to $1.26.

Among other stocks, automotive brakes supplier Pacifica Group was steady at 13.5 cents after it said the bankruptcy of car-making giant General Motors Corp in the United States was likely to hurt Pacifica’s earnings in 2009.

The top-traded stock by volume was property developer GPT group, with 74.74 million shares worth $36.4 million changing hands.

GPT was 1.5 cents lower at 48 cents.

Preliminary national turnover was 2.43 billion shares worth $5.85 billion, with 657 stocks up, 412 down and 324 unchanged.

Source www.bigpondnews.com

Read Full Post »

First-homebuyers urged to take mortgage help on board

An innovative house and land finance package developed in Perth could help more first-homebuyers to secure a home loan reduce their loan repayments. 
  
Based on a four-bedroom, two-bathroom home using part of the home as a rental, therfore allowing first-homebuyers  to afford a buy, part of the home is sealed off from the rest, creating a rentable one-bedroom, one-bathroom home.
  
The rent is taken into account when assessing borrowing capacity and surplus income can be used for bigger mortgage repayments.
  
Housing Edge director Dennis Ward-Fay said the new approach would bring home ownership within the reach of many more first-homebuyers.    
  
“Every application has to be assessed on its own merits but as an example the top four banks would require a couple borrowing for a house and land package valued at $380,000 to be earning an average salary of $63,275. The same couple applying for a Housing Edge loan would require a combined salary of only $56,510.
  
“The home can easily be converted back to a standard four-bedroom, two-bathroom home at a later date if the owners wish,” he said.
 
Homeowners are advised to use a property manager to handle the rent collection and tenancy details.

Read Full Post »