The RBA’s “breezy arrogance”

To borrow a phrase, there”s a “breezy arrogance” about the Reserve Bank’s decision to raise interest rates.

The global economic crisis has hit many thousands of Australian families very hard.

There’s no secret about that.

Official figures show that 175,900 full time jobs have been lost in Australia over the past year.

And 195,200 new part time jobs have appeared in that time.

The Treasurer, Wayne Swan, said earlier this week that nobody wanted to see interest rates rise.

But the Reserve Bank hiked them – by 25 basis points – anyway.

Explaining the decision, the bank’s Governor, Glenn Stevens, said “unemployment had not risen as far as had been expected.”

Expected – presumably – that is – when the crisis first struck, last September.

He admitted, though, that there had been “a moderation in labour costs.”

Not, of course, we hasten to add in Mr Stevens’ own impressive remuneration.

His assertion might well be greeted with polite nods, in the splendid hotel halls, in which economists and business leaders usually meet.

Out in the suburbs, though, where parents have been trying to feed their families on part-time, rather than full-time wages, the response might well be more visceral.

Especially as those families will now have to meet high home loan repayments, as well as those big food, gas and electricity bills, from their reduced incomes.

Yesterday’s rate rise will clearly not be the last.

Even the National Australia Bank has acknowledged that the Reserve Bank has now started “a process of moving the cash rate up progressively over coming months.”

A New York Times columnist, Bob Herbert, says US pundits are now saying “with their usual breezy arrogance” that the Great Recession in America is “probably over.”

The Reserve Bank’s announcement yesterday, shows that some of that “arrogance” is being displayed by our – unelected – policy makers, too.

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Rate rise:Governor’s statement

The Reserve Bank Governor, Glenn Stevens, released the following statement today, when the bank raised its target interest rate to 3.25 per cent.

At its meeting today, the Board decided to raise the cash rate by 25 basis points to 3.25 per cent, effective 7 October 2009.

The global economy is resuming growth. With economic policy settings likely to remain expansionary for some time, the recovery will likely continue during 2010 and forecasts are being revised higher. The expansion is generally expected to be modest in the major countries, due to the continuing legacy of the financial crisis. Prospects for Australia’s Asian trading partners appear to be noticeably better. Growth in China has been very strong, which is having a significant impact on other economies in the region and on commodity markets. For Australia’s trading partner group, growth in 2010 is likely to be close to trend.

Sentiment in global financial markets has continued to improve. Nonetheless, the state of balance sheets in some major countries remains a potential constraint on their expansion.

Economic conditions in Australia have been stronger than expected and measures of confidence have recovered.  Some spending has probably been brought forward by the various policy initiatives. As those effects diminish, these areas of demand may soften somewhat. Some types of capital spending are likely to be held back for a while by financing constraints, but it now appears that private investment will not be as weak as earlier expected. Medium-term prospects for investment appear, moreover, to be strengthening. Higher dwelling activity and public infrastructure spending is also starting to provide more support to spending. Overall, growth through 2010 looks likely to be close to trend.

Unemployment has not risen as far as had been expected. The weaker demand for labour over the past year or so nonetheless has seen a moderation in labour costs. Helped by this and the earlier fall in energy and commodity prices, inflation has been declining, though measures of underlying inflation remained higher than the target on the latest reading. Underlying inflation should continue to moderate in the near term, but now will probably not fall as far as earlier thought.

Housing credit growth has been solid and dwelling prices have risen appreciably over the past six months. Business borrowing has been declining, as companies have sought to reduce leverage in an environment of tighter lending standards. But large firms have had good access to equity capital and access to debt markets appears to be improving, helped by the better-than-expected economic conditions and increased willingness on the part of investors to accept risk. Share markets have recovered significant ground.

Interest rates facing prospective borrowers on fixed-rate loans have already risen to some extent, as markets have anticipated a higher level of the cash rate. For many business borrowers, increases in risk margins will still be occurring for some time yet. In addition, the exchange rate has appreciated considerably over the past year, which will dampen pressure on prices and constrain growth in the tradeables sector. These factors have been carefully considered by the Board.

In late 2008 and early 2009, the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. That basis for such a low interest rate setting has now passed, however. With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy. This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.

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Reserve bank raises rates

The Reserve Bank has raised its target interest rate by 25 basis points to 3.25 per cent.

The bank announced its decision at 2.30pm.

Its Governor, Glenn Stevens, had made no secret of the fact that he regarded the previous rate, of just 3 per cent, as extra-ordinarily low.

Many economists had believed that the bank would wait until November, before it raised rates.

Its decision to do so now, though, will be seen as a sign that the bank believes Australia’s recovery from the global economic crisis is now well under way.

The government, though, has its reservations.

The Treasurer, Wayne Swan, has said repeatedly that Australia is not out of the woods yet.

And – only yesterday – he said that no-one wanted to see the nation’s interest rates rise.

The housing industry will not welcome today’s decision, either.

Nor will Australia’s home buyers.

The bank’s decision is a clear sign that Australia’s interest rates – and monthly mortgage payments – are – once again – on the way up.

The reprieve was brief.

The bank’s marker rate was cut to 3 per cent – from 3.25 per cent – in April this year.

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Surviving the crisis:Some practical tips

Although Australia has performed well in the global economic crisis, thousands of families throughout the nation are still having a very tough time.

The number of full time jobs available has shrunk, but that has been partly offset by strong growth in part time employment.

The Treasurer, Wayne Swan, says this shows Australians have “pulled together” to save as many jobs as possible.

The nation will  be watching closely this week, to see whether the Reserve Bank raises interest rates and whether Australia’s unemployment rate rose last month.

The Reserve Bank will make its decision known at 2.30 pm tomorrow.  As the bank’s Governor, Glenn Stevens, said only last week that there is still not much growth in the Australian economy, a rate rise this month is probably still unlikely.

The unemployment figures, which are due out on Thursday, though, may well show some deterioration.

As Mr Swan also noted, prices for Australia’s exports have fallen by 34.7 per cent, over the past year.

That will certainly have an impact on the nation’s job market, even if that shows up merely as even more substitution of part time work for full time jobs.

Families already struggling to get by on short time incomes, though, have largely been overlooked in the media.

Fortunately, freelance journalists, like your correspondent, do have some  experience, in the survival stakes.

Three items, in particular, can have a big impact on your family budget.

One. Leave your car, or cars, in the garage as much as possible.  The $70 or so, that it costs to fill a family sized car each week, can still buy a useful amount of groceries.  Use public transport, on season tickets, as much as possible.  It’s a lot cheaper.

Two. Eat and entertain at home.  Even a modest meal out is likely to cost upwards of $20 a head.  Round steak, for a hearty beef stew, though, can be purchased for a home cooked meal, for less than $2.50 each, plus a similar amount for vegetable and other ingredients..  And who doesn’t like a good cassoulet?

Three. Private Briefing also has an excellent recipe  for home made bread available, free.  Just ask.

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Financial freedom:the enticing dream

Financial freedom.

A dream we all share.

Very saleable, too.

Indeed, it is one of the main hooks the banks use to encourage us to use their services.

So it should be no surprise to find that Australia’s bank chiefs, themselves, value this dream, very highly.

Naturally, that includes those at the very top.

The Productivity Commission noted, earlier this week, that Australia’s top 20 CEO’s must struggle by, on an average salary of just $10 million a year.

Australia’s top bankers would certainly be in this very select group.

Tom Wolfe called their counterparts, in the United States, the Masters of the Universe, in his  highly prescient 1987 novel, The Bonfire of the Vanities.  Twenty two years later, they became the very people whose reckless greed came close to wrecking the global financial system, with catastrophic results.

Australia’s bankers, certainly, have been more restrained.  They stopped writing the word “Yes” on their walls, many years ago.

But their ideas of their own worth are similar.

That led them yesterday, to issue a statement praising the Productivity Commission, for rejecting the idea of caps, on their salaries and those of  other top executives, in this country.

David Bell, chief executive of the Australian Bankers’ Association, said:”The community is fortunate  to have an economic research organisation that can produce quality work in a very difficult public policy environment.”

We couldn’t agree more.  Indeed, we are constantly amazed by the wisdom of those who agree with us.

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Salary caps rejected

The Productivity Commission says salary caps are not needed to curb excessive pay rises for Australia’s top executives.

The Federal government had asked the Commission to look at this issue, in the wake of the global economic crisis which was caused, to a large extent, by excessive pay rises for US bankers.

The Commission’s Chairman, Garry Banks, was blunt in his assessment.

“We concluded that the way forward is not to impose salary caps, which would be unworkable and have harmful economic impacts,” he said.

Instead, the commission proposed a series of measures,  which it said would “strengthen the integrity of pay setting boards.”

These include:-

• Barring executives from sitting on remuneration committees
• Requiring independent reports from remuneration consultants and
• Barring directors and executives from voting on remuneration issues.

The Commission reported that the average pay of Australia’s top 20 executives is already almost $10million a year.

That is about 150 times Australia’s average weekly earnings.

Even executives in  Australia’s smallest 500 listed companies have an average annual salary of some $180,000.

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Australia sees a latte led recovery:Rate rises closer

Australians flooded back to their favourite coffee shops in August, in the clearest sign yet that the nation is seeing a latte-led recovery.

The Australian Bureau of Statistics reported yesterday that spending in Australia’s coffee shops, restaurants and take away food outlets rose by 1.9 per cent in August.

That was among the biggest rises in any sector, exceeded only by spending in Department Stores, which rose by 2.4 per cent in the month, on seasonally adjusted figures.

The overall rise, for the month, was a more moderate 0.9 per cent.  But that was still enough to cancel the revised estimate of a 0.9 per cent fall, in Australia’s retail sales, during July.

Even that rise, though, might be enough to bring forward Australia’s next rate rise, though most economists still expect the Reserve Bank board to keep rates on hold next Tuesday, when it meets to review interest rate levels.

The bank’s Governor, Glenn Stevens, says its present marker rate, of 3 per cent, is at a historically low level.

A senior Reserve Bank official, Tony Richards, also revealed on Tuesday that the bank is worried about rising house prices, which he blamed largely on supply constraints.

But the Australian Bureau of Statistics, which produced today’s retail sales figures, also had good news for him.

It reported that building approvals for private sector houses rose by 3.1 per cent on seasonally adjusted figures in August suggesting that some of the blockages in the supply chain have been cleared.

However the Master Builders Association later described the latest approval data as “mixed” saying investors are still being squeezed by the global economic crises and commercial building approvals are down.

The bureau had reported earlier that retail sales fell by 1 per cent in July, but it revised that to a fall of 0.9 per cent, when it released today’s figures.

The latest retail sales figures are seen as particularly important, as the Federal government’s stimulus package has now passed its peak, for most Australians.

So the strong result, seen in the latest figures, will confirm the views of those who believe private spending is returning to the economy, in the wake of the global economic crisis.

Australians spent 1.8 per cent more on food in August, while spending in furniture and household goods stores rose by 0.9 per cent.

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Australia sees a latte-led recovery:Rate rises closer

Australians flooded back to their favourite coffee shops in August, in the clearest sign yet that the nation is seeing a latte-led recovery.

The Australian Bureau of Statistics reported yesterday that spending in Australia’s coffee shops, restaurants and take away food outlets rose by 1.9 per cent in August.

That was among the biggest rises in any sector, exceeded only by spending in Department Stores, which rose by 2.4 per cent in the month, on seasonally adjusted figures.

The overall rise, for the month, was a more moderate 0.9 per cent.  But that was still enough to cancel the revised estimate of a 0.9 per cent fall, in Australia’s retail sales, during July.

Even that rise, though, might be enough to bring forward Australia’s next rate rise, though most economists still expect the Reserve Bank board to keep rates on hold next Tuesday, when it meets to review interest rate levels.

The bank’s Governor, Glenn Stevens, says its present marker rate, of 3 per cent, is at a historically low level.

A senior Reserve Bank official, Tony Richards, also revealed on Tuesday that the bank is worried about rising house prices, which he blamed largely on supply constraints.

But the Australian Bureau of Statistics, which produced today’s retail sales figures, also had good news for him.

It reported that building approvals for private sector houses rose by 3.1 per cent on seasonally adjusted figures in August suggesting that some of the blockages in the supply chain have been cleared.

However the Master Builders Association later described the latest approval data as “mixed” saying investors are still being squeezed by the global economic crises and commercial building approvals are down.

The bureau had reported earlier that retail sales fell by 1 per cent in July, but it revised that to a fall of 0.9 per cent, when it released today’s figures.

The latest retail sales figures are seen as particularly important, as the Federal government’s stimulus package has now passed its peak, for most Australians.

So the strong result, seen in the latest figures, will confirm the views of those who believe private spending is returning to the economy, in the wake of the global economic crisis.

Australians spent 1.8 per cent more on food in August, while spending in furniture and household goods stores rose by 0.9 per cent.

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