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$A rises against the $US, after the Reserve Bank keeps interest rates on hold at 4.25 per cent

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A missed chance: builders

The Reserve Bank missed a chance to  bolster  the confidence of Australian families and the business sector when it decided to keep rates on hold, builders say.
“A rate cut today would have been appropriate for current economic conditions,” the Housing Industry Association’s chief economist, Harley Dale said. “But sadly that decision was not taken.”

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Rates on hold – for now

The Reserve Bank has surprised many economists by leaving its marker interest rate on hold at 4.25 per cent.

Another small cut had been widely expected.

However, the Bank’s Governor, Glenn Stevens, said  a “moderate” economic expansion is occurring in the United States.

He said too that  “acute financial pressures” in Europe  had been “alleviated considerably” late last year.

Mr Stevens also said that the two rate cuts, that the bank announced late last year, had left the rates Australia’s borrowers pay close to their “medium term average.”

“With (domestic) growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy was appropriate for the moment,” the Reserve Bank Governor added.

The decision has, at least, postponed a looming stand off between the Federal government and Australia’s big four banks.

The Treasurer, Wayne Swan, had called on those banks to pass on any rate cut in full.

He said that  banks which did not do so would be acting to protect their “huge profitability.”

The banks might well have resisted that demand, if the Reserve Bank had cut its marker rate.

Bank executives, including Westpac’s chief, Gail Kelly, argue that the costs Australia’s banks now incur, raising funds for home and business loans, has risen as a result of the European debt crisis.

The risk of an all out confrontation between the Federal government and the banks eased when the Reserve Bank kept rates on hold.

Mr Stevens did admit that more needs to be done to bring Europe’s debt problems under control,

“Much remains to be done to put European sovereigns and banks on a sound footing, but some progress has been made,” he said.

Mr Stevens admitted, though, that financial market sentiment “remains skittish.”

He also said : “information on the Australian economy continues to suggest growth close to trend,

Mr Stevens admitted, though, that differences between sectors still persist.

“Labour market conditions softened during 2011 and the unemployment rate increased slightly in mid year, “ he said.

However unemployment had been steady over recent months.

Consumer price inflation “has declined as expected,” he added,

Mr Stevens said that had happened as fresh food prices eased, as the large rises resulting  from last year’s floods, passed.

“Year-ended CPI inflation will fall further over the next quarter or two,” he added.

“In underlying terms, inflation is around 2½ per cent,” Mr Stevens said.

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Your living costs:How they have changed

The living costs of Australia’s working families rose by 3.3 per cent last year.

That is slightly above the nation’s adjusted inflation rate of 3.1 per cent.

Although directly comparable wage figures are not yet available,  the best indications suggest that wage growth, over the same time, would have covered that rise.

The latest available wage figures show average weekly earnings in Australia rose by 4.7 per cent in the 12 months to the end of August.

The Bureau of Statistics also reported today that the average cost of living for Australian pensioners rose by 3 per cent in 2011.

Both groups benefited from lower fruit and vegetable prices in the final three months of last year.

The main price rises, for working families, were in the cost of domestic holiday travel and accommodation, rents and interest charges.

The living costs, faced by pensioners, fell by 0.4 per cent in the December quarter.

They made some savings on lower pharmaceutical charges but, like other Australians, pensioners also faced higher rents in that time.

Self funded retirees saw their living costs fall by 0.1 per cent in the final three months of last year, but their costs, too, rose by 3.3 per cent over the year.

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Australia’s huge investment queue

Investment is still booming, even though several other parts of the Australian economy are flat.

The latest issue of the Deloitte Access Economics investment monitor shows that $415.4 billion worth of  “definite” projects are now in the nation’s investment queue.

That’s a 43 per cent rise in the 12 months to the end of December..

This matters.

“The value of projects under way provides a healthy buffer against a potential global slowdown in 2012,” the authors of the study say.

“Indeed it is already providing the bulk of growth for the Australian economy at the moment,” they add.

The authors also recalled  the famous wartime “Brisbane Line,” a policy which would have seen Australia abandon all of its territory north of the Queensland capital, if Japan had launched a full scale invasion.

“Fast forward to today and the Brisbane Line could be used to characterise the Australian economy,” they say.

“Today it is economic activity to the north and west which is defining Australia’s prospects…” they add.

That area provides just 20 per cent of Australia’s jobs.

“Yet when it comes to major investment projects under construction, that part of Australia….dominates, with $161.3 billion of investments under construction, or 46 per cent of the total,” the study concludes.

Mining projects dominate.

The authors also say that  the present investment surge is not likely to ease any time soon.

Instead, they predict that investment levels will continue rising over 2011-12 and the two following  years.

“This is very much driven by the healthy pipeline of investment projects awaiting approval,” they say.

The authors say, too, that spending on flood reconstruction and the National Broadband Network would also continue for some time yet.

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ANZ declares independence

 The  ANZ  bank adopted a softly, softly approach today when it announced its independence from Reserve Bank reviews of interest rates.

It simply announced that its variable interest rates for retail mortgages and small business lending will remain unchanged after its (own) January interest rate review.

The statement co-incided with a separate report that the ANZ is planning to cut hundreds of jobs.

The cuts are expected in the first half of the year, as it seeks to cut costs in a weaker lending environment.

The Sydney Morning Herald reports that officials from the Finance Sector Union were briefed on the looming job losses this morning, with the cuts expected within six months.

BusinessDay understands about 700 staff in back-office roles may be affected. One source within the bank placed the figure closer to 1000, “although the specific numbers could be slightly higher or lower”.

Read more: http://www.smh.com.au/business/anz-to-slash-hundreds-of-jobs-20120113-1pyd5.html#ixzz1jJSBUyqD

The ANZ, like other big banks, has been worried by public expectations that they will cut – or raise – these rates, whenever the Reserve Bank changes its overnight cash rate.

There was never any chance that the Reserve Bank would do that this month, as its board, which reviews these rates, is taking a well earned break.

It won’t meet again until the first Tuesday in February.

Australia’s big banks have been growing increasingly discontented with the present system of virtually automatic changes, when the Reserve Bank acts.

They argue that this does not give them the wriggle room that is necessary for them to operate effectively in a world of tight margins and increasing instability.

So the ANZ decided to lead.

In a statement just issued, ANZ CEO Australia Philip Chronican said: “By reviewing key variable lending rates each month we can more accurately reflect the sustained changes in funding costs we incur through the interest we pay to customers for their deposits and to investors in wholesale money markets.”

The bank said its criteria for assessing its rates would include:-

The following criteria are used to assess interest rates:

1. Ensuring attractive returns for depositors: ANZ is committed to providing customers with competitive returns and absolute security for their savings.

2. The cost of wholesale funding: This covers the interest we pay on funds from wholesale markets. The cost of these funds has become more volatile and expensive since the GFC and has been elevated in recent months as a result ofthe European debt crisis.

3. Our competitive position.

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House prices – and rents – tipped to rise

House prices are likely to start rising again this year, according to a new study.

The Housing Industry Association, which conducted it, said there had already been a small rise – of  0.1 per cent  - in capital city house prices in November, after the Reserve Bank’s first rate cut.

“The bottom line is that a lack of rental properties, cheaper borrowing costs and relatively healthy employment levels  are likely to combine to push up housing demand, rents and dwelling prices in 2012,” the Association said.

Capital city house prices still fell by 4.3 per cent over  the 12 months to the end of November.

But the Association said the small rise in November “provides some hope that the worst of the residential property market slump may now be behind us.”

And it said the broader picture also suggests that house prices might well rise this year.

Australia still has a large housing shortage.

The Association’s own estimate is that the shortage, nationally, stands at 229,500.

But it admits that there are still uncertainties.

“The reality is that nobody can predict exactly how the European debt and deficit fiasco will pan out – there are simply too many variables,” it says.

However it adds: “The good news is that with back-to-back rate cuts in November and December 2011 there is every chance we may see a return to dwelling price growth at some stage in 2012.”

Of course, the variation across regions will continue to be marked,” it says.

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Nervous Australians shun credit

Australians have been using their credit cards very carefully over the past year.

The Reserve Bank reports that “other personal credit” – which includes amounts put on credit cards – rose by just 0.1 per cent in November.

And the amount outstanding – on the same measure – actually fell by 1.1 per cent over the 12 months to the end of November.

With prices  now rising at an annual rate of 3.5 per cent – on the latest available data – these figures suggest a substantial contraction in the use of credit cards, store credit and other personal credit over the past year.

Consumer confidence has been weak, over much of that time, largely as a result of persistent instability in world financial markets.

Growth in housing credit, though,  has been a little stronger, over the same time.

The  bank reports that it grew by 0.5 per cent last month, to a level 5.7 per cent higher than that of November last year.

However industry analysts  say much of the activity has been in high rise apartment construction, while the construction of traditional homes has remained weak.

The Housing Industry Association is also warning that the two recent rate cuts won’t be enough to revive that sector and that home construction is likely to fall even further behind underlying demand.

Business owners, worried by poor sales, have also been reluctant to borrow.

The Reserve Bank reported, also, that business borrowing was flat last month and rose by a bare 0.9 per cent over the 12 months to the end of November.

What, though, of total credit?

The bank also reports that total credit, provided to the private sector rose by 0.3 per cent over November 2011, after a 0.2 per cent rise in October.

Over the year to November, total credit rose by 3.5 per cent, neatly matching price rises, over that time.

Related stories:

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3. Credit cards:the coming crunch?