Rates now closer to normal, RBA boss says

Reserve Bank governor Glenn Stevens has signalled interest rates are on their way back up with mortgage rates likely to edge up between half and a full percentage point.

Giving evidence to the House of Representatives economics committee in Canberra, Mr Stevens said the RBA’s focus continued to be on what mortgage rates were offered by commercial banks rather than on the Reserve’s official cash rate.

He said given the commercial banks had lifted rates over and above what the RBA had done, there was still about a half and a full percentage point to go before mortgage rates were back to what the Reserve would consider close to their long term average.

“There’s a little distance to go yet before I think you could characterise the setting of interest rates as normal or average,” he said.

The RBA surprised markets by leaving official rates on hold at its February meeting.

Mr Stevens said on top of the Reserve’s own lift in official rates, the commercial banks actions had effectively delivered three and a half interest rate rises to mortgages cases, and in the case of Westpac customers, four rate hikes.

He said one of the advantages of lifting rates as the RBA did in the last three months of 2009 was that it could hold rates in February and get a clearer picture of how the economy was travelling.

“You get that luxury when you can wait a little a bit further down the line,” he said.

Mr Stevens said Australia had performed much better than even the RBA had expected out of the global recession.

But he warned that meant the economy was now heading into an upswing stronger than otherwise would have been the case.

“With the economy having had only a mild downturn with begin the upswing with less spare capacity than would typically be the case after a recession,” he said.

“There’s less scope for robust demand growth without inflation starting to rise again down the track.

“Monetary policy must be careful not to overstay a very expansionary setting.”

Mr Stevens said the resources sector in particular was looking to grow quickly, with the terms of trade likely to head back to the record highs seen in 2008 this year.

He also highlighted the strength of Australia’s sovereign debt position, hosing down fears the country was carrying too much debt.

“Australia’s position is by any measure very strong indeed,” he said.

The governor also played down fears raised by Opposition finance spokesman Barnaby Joyce that Australia could default on its debts.

Mr Stevens said Australia had never defaulted before and there were no signs it would now.

“I very much doubt there ever will be,” he said. 

“Monetary policy must be careful not to overstay a very expansionary setting.”

Mr Stevens said the resources sector in particular was looking to grow quickly, with the terms of trade likely to head back to the record highs seen in 2008 this year.

He also highlighted the strength of Australia’s sovereign debt position, hosing down fears the country was carrying too much debt.

“Australia’s position is by any measure very strong indeed,” he said.

The governor also played down fears raised by Opposition finance spokesman Barnaby Joyce that Australia could default on its debts.

Mr Stevens said Australia had never defaulted before and there were no signs it would now.

“I very much doubt there ever will be,” he said.

Source www.thewest.com.au

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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

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Blitz on working holiday visa scam

A SPECIALIST integrity unit has been formed inside the Department of Immigration to deal with widespread fraud in the working holiday visa program, on which industries such as fruit growing depend.

More than 200 internet advertisements have been found offering to buy or sell documents allowing backpackers to claim they had worked in rural jobs without them leaving Sydney, and thus extend their working holiday visas. The standard fee is $400. So far, 64 visas have been cancelled over the fraud and at least 19 more are being reviewed.

One man, an Irish national, has been convicted of fraud. ”There’s been more than 100 fraudulent claims identified this financial year,” a spokeswoman for the department said. ”The answer is we don’t know [the full extent of the fraud]. At this stage it’s too early to determine and we will be looking at it over the next six months.”

The working holiday visa (subclass 417) allows people to extend their stay in Australia by a year if they can prove they have worked in a rural area for three months. Applications are lodged online but have been abused by people selling Australian business numbers linked to farms so backpackers can falsely claim they worked on farms.

”Second year visas for sale,” one ad read. ”Will email completed 1263 form and add your details to my books so you can gain second year visa with ease.”

Another ad offering similar services, posted on the Gumtree website on Saturday, had received more than 2000 hits by last night. Unlike visa scams targeting international students, mainly Indians, this fraud is used mainly by European visitors.

One backpacker told the Herald he had been offered the false documentation as soon as be arrived in Australia, by people staying at the same hostel.

”People told me about buying the documents – getting the numbers to put in,” he said. ”When I arrived here people said you can go there [to a farm] or you can buy. Everyone knows about it. It’s easy. All the people who are here know about that.”

The federal Opposition spokeswoman on immigration, Sharman Stone, said the widespread fraud reflected under-resourcing of the department.

Source  :  www.smh.com.au

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Rudd plays a straight bat on Rove

Prime Minister Kevin Rudd may have been worried about his prime-time appearance alongside Bruno on Rove last night, but it appears he came through smelling of roses.

Yesterday he said on his Twitter account he was wary of appearing next to Sacha Baron Cohen’s Austrian fashion reporter, asking his followers: “Any ideas guys about how I can get out of this one?”

But after a week in which Opposition Leader Malcolm Turnbull spectacularly failed to secure the Prime Minister’s scalp over the fake OzCar email, Mr Rudd was always going to like his chances of a sympathetic audience on national TV.

He used an interview with Rove McManus to explain his stance on the OzCar affair, and answered the traditional “Five Questions” from the popular television personality.

Gone were the stilted colloquialisms that have been typical of Mr Rudd’s staged media performances, but McManus didn’t let the PM get away without confronting his now infamous “fair shake of the sauce bottle” remark.                                                                                                                                                                                                                                 

“How many times a day do you actually shake the sauce bottle?” asked the host.

Mr Rudd parried back with “not often enough,” earning the approval of many Twitterers who were watching the show.

“Sauce bottle joke – awesome! ‘Not often enough’,” said one blogger, while another said they had a “lot more respect” for Mr Rudd after his appearance.

Twitter was alive with chatter about the Prime Minister’s cameo, with topics like “Rove”, “Rudd” and “KevinRuddPM” among the most talked about on the microblogging service.

Channel 10 and the Prime Minister’s office would have both been happy with that result – Mr Rudd’s appearance on Australian television was getting as much debate as “Iranelection” and “Michaeljackson”.

While some bloggers dismissed his appearance as awkward and cringeworthy, most reactions were positive, with one lamenting the fact that Bruno did not share the stage with the PM.

Mr Rudd said he was nervous when he found out the comedian was going to be on the show, telling McManus: “Basically I’m in a state of induced panic.”

Perhaps it is lucky for Mr Rudd that they did not share the stage because Bruno’s appraisal was straight to the point: “Your Prime Minister? That guy I saw backstage? He’s so hot.”

Parliament has risen for six weeks, Mr Turnbull’s approval ratings have taken a huge dive in the wake of the OzCar affair and Rove’s audience likes the Prime Minister.

Source  :  www.abc.net.au

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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

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Socceroos qualify for 2010 World Cup

AUSTRALIA have booked a ticket to the 2010 World Cup finals in South Africa with a scoreless draw against a determined Qatar at the Al Sadd Club in Doha.

Needing only a point to officially seal qualification, the Socceroos got the job done against a youthful Qatar side to ensure back-to-back World Cup appearances for the first time.

The home side proved tougher opposition than they had in three previous losses, but Australia could feel unlucky not to have won after Tim Cahill struck the post with a spectacular bicycle kick in the first half and Qatari keeper Qasem Burhan made several brilliant saves in the second.                                     
 
The win means the Socceroos cannot finish any lower than second in Asia’s Group A, with the top two teams earning qualification.

They joined Asian rivals Japan as the first two sides to qualify for next year’s tournament, after the Blue Samurai sealed their spot with a 1-0 win over Uzbekistan earlier on Saturday.

Hosts South Africa are exempt from qualifying.

Both sides made a tentative start in front of a small but vocal  Doha crowd, with the Socceroos content to keep possession in the hot and humid conditions.

Qatar’s star striker Sebastian Soria Quintana looked dangerous early on and had the first real chance of the half after getting in behind Chris Coyne, but he flashed his shot across the face of goal.

The Socceroos muscled their way back into the game before Cahill was denied one of the great goals by the woodwork in the 27th minute.

Josh Kennedy, who impressed up front, flicked on a Mark Bresciano free kick with his head, before Cahill found himself in space, controlled with his chest and drilled an overhead kick into the right upright.

Harry Kewell became increasingly menacing after switching to the right win, going close to scoring himself before creating another move which led to Vince Grella firing a volley just over the bar in the 33rd minute.

Qatar had two chances late in the half with Cahill blocking Quintana’s effort and Mark Schwarzer punching away an ambitions long shot from Ahmed Faris.

Australia stepped up their game early in the second half with a flash of chances within a 10-minute period.

The first came to an unlikely source in defender Chris Coyne, who had his shot cleared off the line after attempting to turn in a headed Cahill effort.

The impressive Everton midfielder was again another stunner when his powerful drive was brilliantly saved in the 57th minute by Burhan.

Burhan was called into action again to tip over a Kennedy shot from out wide and once more in the 63rd minute when Kewell collected a brilliant Grella ball, cut inside Ibrahim Majed and forced another great save by Burhan with his right foot.

Continued to threaten and fired across the face of goal in the 80th and although they didn’t get the goal they perhaps deserved, it meant little when the whistle blew to ensure another historic World Cup appearance.

The Socceroos now have matches against Bahrain and Japan at home to celebrate.

Source www.news.com.au

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