by Alan Thornhill
The Federal government will haul Australia’s banks before a powerful parliamentary committee as it seeks to persuade them to pass on the Reserve Bank’s latest interest rate cut in full.
The Prime Minister, Malcolm Turnbull and his Treasurer, Scott Morrison, made the announcement in a joint statement today.
Labor might well have gone further.
It promised a royal commission into the behavior of Australia’s banks, before last month’s Federal elections.
Mr Turnbull said that in challenging economic times globally, it is important that Australians retain faith in our financial institutions and the decisions they are taking.
“The Australian economy depends critically on the performance and strength of our banking and financial system,” Mr Turnbull said.
” Banks operate under a social licence and have responsibilities to the Australian public.”
He said they would be asked, particularly about several matters.when they appear before the House of Representatives Economics Committee.
In particular the banks would be required to explain:
- International economic and financial market developments and how these are affecting Australia
- Developments in prudential regulation, including capital requirements, and how these are affecting the policies of Australian banks
- The costs of funds, impacts on margins and the basis for bank interest rate pricing decisions
- How individual banks and the banking industry as a whole are responding to issues previously raised in Parliamentary inquiries through their package of reforms announced in April 2016
- Bank perspectives on the performance of the Australian economy, including strengths and risks.
The appearance by the banks will ensure they have the important opportunity to transparently account for their decision making and how they balance the needs of borrowers, savers, shareholders and the wider community, Mr Turnbull said.
The initial response from Australia’s banks was cautious.
Andrew Thorburn, the National Australia Bank’s Chief Executive Officer, said for example that his bank is looking forward to the dialogue around “how we balance” the needs of different stakeholders.
He said it is also anticipating “outlining the full cost of being an unquestionably strong bank and bringing further insight to the topic of how we set our interest rates.
“I am proud to be a banker,” he added.
” It has always required carefully thought through decisions,” he added.
“But the focus has been on serving the many people who rely on us to get these decisions right. ”
by Alan Thornhill
By Alan Thornhill
Twice this year, Glenn Stevens has done something that central bankers don’t like doing.
That is cutting interest rates to previously unprecedented levels
That happened first in May.
Then – again – from Wednesday.
Both time rates were cut by 25 basis points
The reason Reserve bank chiefs, like Glenn Steven, don’t like taking this step is simple.
But not, necessarily, obvious.
After all, young home buyers will generally welcome the relief they will get in their home loan repayments, when their banks pass, at least some of the benefit they receive on to them.
If that’s all there was to it, Mr Stevens would, undoubtedly be among the most popular men in the country right now.
But although he is, by all accounts, is a fine fellow, things aren’t as simple as that.
What about those probably somewhat older people, we might call the Savers, who have been relying on a little interest income, perhaps through their superannuation accounts, to help them pay their grocery bills in retirement.
There is another thing, too, that can keep central bankers awake at night, when interest rates fall to unprecedented levels, on their watch.
That’s walking down a dark path, on a moonless night.
Who knows what might go wrong?
by Alan Thornhill
The Reserve Bank today cut its cash rate by 25 basis points, to its lowest level ever, just 1.5 cent.
Explaining the decision, the bank’s Governor, Glenn Stevens said: “the global economy is continuing to grow, at a lower than average pace.
“Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies.
“Actions by Chinese policymakers are supporting the near-term growth outlook, but the underlying pace of China’s growth appears to be moderating, “ Mr Stevens said.
He noted that: “commodity prices are above recent lows.”
However he added: “…this follows very substantial declines over the past couple of years.
“Australia’s terms of trade remain much lower than they had been in recent years.
“Financial markets have continued to function effectively.
Mr Stevens said: ” Funding costs for high-quality borrowers remain low and, globally, monetary policy remains remarkably accommodative.
“In Australia, recent data suggests that overall growth is continuing at a moderate pace, despite a very large decline in business investment,” he added.
“Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend.
“Labour market indicators continue to be somewhat mixed, but are consistent with a modest pace of expansion in employment in the near term.
“Recent data confirm that inflation remains quite low.
“Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.
“Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time,” Mr Stevens said.
The Bureau of Statistics reported that Australia’s inflation rate, on the Consumer Price Index, stood at just 1 per cent in the 12 months to the end of June.
That is well below the bank’s target range – of 2 to 3 per cent inflation – over the course of a business cycle.
by Alan Thornhill
Australia’s annual inflation rate fell to just 1 pr cent in the June quarter.
That was the weakest annual rise since the June quarter of 1999.
This is shown in the June quarter Consumer Price Index figures just released by the Australian Bureau of Statistics.
The fall in the annual rate – from 1..3 per cent at the end of the March quarter – occurred even though consumer prices rose by 0.4 per cent in the June quarter.
This followed a fall of 0.2 per cent in the March quarter.
The Bureau said the most significant price rises this quarter are in medical and hospital services (+4.2 per cent), automotive fuel (+5.9 per cent) and tobacco (+2.1 per cent).
But it added: “These rises are partially offset by falls in domestic holiday travel and accommodation (–3.7 per cent), motor vehicles (–1.3 per cent) and telecommunication equipment and services (–1.5 per cent).
The bureau also said that the increase of 4.2 per cent for medical and hospital services was driven by the annual increase in Private Health Insurance (PHI) premiums.
These rise on 1 April every year.
It said also that the increase of 5.9 per cent for automotive fuel follows three consecutive quarterly falls.
The rise included increases in unleaded, premium and ethanol fuels.
The bureau noted that world oil prices increased from a 12-year low last quarter.
by Alan Thornhill
Australians planning to buy new homes are still finding them less affordable.
However, a new survey, by the Housing Industry Association confirms that significant differences between the various State capitals persist.
The association’s Affordability Report, published today, showed that affordability overall fell by 3.7 per cent in the June quarter.
It was also 2.1 per cent less favorable than that of the same period a year earlier.
The Association said the capital city housing affordability index fell by 4.3 per cent during the quarter, while regional market index experienced a 1.9 per cent improvement.
“Home price growth moderated in the early part of the year and the HIA Housing Affordability Index showed an improvement in affordability during the March 2016 quarter,” HIA Economist, Geordan Murray said.
“However, in the June quarter dwelling price growth returned and the index reverted to the level we saw at the end of 2015,” he added.
“While there was a decline in the headline index tracking the national picture, there was substantial variation around the country – with substantial differences between states, and also differences between capital city markets and regional markets.”
“The geographic variation in affordability is most evident in the comparison between Melbourne and Perth,” Mr Murray said.
Over the last year, the median dwelling price in Perth has fallen by 4.7 per cent while Melbourne’s has grown by 11.5 per cent,” he added.
This has seen the affordability index for Perth increase by 6.2 per cent over the last year, while the index for Melbourne has fallen by 6.2 per cent.”
“These differences in affordability align with the relative economic performance of these two states.
“The Western Australian economy is navigating the tail end of the mining boom which has seen conditions in the local labour market deteriorate and consequently the rate of population growth has fallen quite sharply.
“ In contrast, Victoria has experienced a healthy level of growth in the labour force and continues to record the strongest rate of population growth in the country,” Mr Murray said.
During the June 2016 quarter, improvements in affordability were observed in three capital cities with the largest improvement in Perth (+3.2 per cent), Darwin (+2.9 per cent) and Hobart (+2.2 per cent).
Affordability worsened in the remaining five capital cities during the March 2016 quarter with the largest decline recorded in Melbourne (-7.4 per cent), followed by Canberra (-5.7 per cent), Sydney (-1.6 per cent), Adelaide (-1.3 per cent), and Brisbane (-1.0 per cent).
by Alan Thornhill
The Reserve Bank is waiting for fresh information, before it decides whether to cut interest rates again, as it did in May.
The bank clarified its position in the minutes from its July 5 Board meeting which it released today.
It said growth in Australia’s major trading partners appeared to have remained slightly below average over recent months.
This was in line with earlier forecasts.
“ GDP growth in China appeared to have eased further, which was continuing to affect economic conditions throughout the Asian region,” the bank added.
It said, too, that: “monetary policy remained very accomodative across the major economies.”
That was expected to remain so given that inflation was below most central banks’ targets.
However, the bank added, this was despite improvements in labour markets leading to full employment in several large advanced economies.
It said: “ GDP growth in China appeared to have eased further, which was continuing to affect economic conditions throughout the Asian region.
“Monetary policy remained very accommodative across the major economies.
And it is expected to remain so given that inflation was below most central banks’ targets, despite improvements in labour markets leading to full employment in several large advanced economies, the bank added
It said: “the United Kingdom’s vote to leave the European Union had led to considerable financial market volatility, which had since settled.
“Financial markets had functioned effectively throughout the episode and borrowing costs for high-quality borrowers remained low.
Any effects of the referendum outcome on UK and global economic activity remained to be seen.
In any event, the referendum result implied a period of uncertainty about the outlook for the United Kingdom and the European Union. In the absence of significant financial dislocation, the staff’s central case was that this uncertainty was expected to have only a modest adverse effect on global economic activity.
Commodity prices had generally increased since the previous meeting. At the time of the present meeting, the Australian dollar (in trade-weighted terms) was around the levels assumed in the forecasts at the time of the May Statement on Monetary Policy
by Alan Thornhill
Confidence in Australia’s property market has eased since the Reserve Bank cut the nation’s interest rates in May.
A survey that the National Australia Bank published today shows that the easing is particularly pronounced among property professionals.
In the first NAB Residential Property Survey since the RBA cut the official cash rate in May this year, housing market sentiment amongst property professionals softened.
The bank said its residential Property Index fell to +3, from +6 in Q1 2016, to remain below its long term average of +13.
“Sentiment moderated in all states except SA/NT, which rose 19 points,” it added.
New South Wales joined Victoria as the best performing state, followed by Queensland, the bank said.
“Confidence has however improved, with the national index rising to +29 next year, and +36 in two years’ time,” it added.
The bank said its residential Property Survey for Q2 2016 also found that respondents expect Victoria and Queensland to provide the best capital returns over the next one to two years.
“It’s still a mixed picture across Australia, with house price expectations for the next 12 months holding up well in the eastern states whilst staying flat in SA/NT and continuing to fall sharply in WA,” the bank’s Chief Economist Alan Oster said.
The bank said it had also revised its national house price forecasts for 2016 upwards to 5.1 per cent (from 1.5 per cent). Unit price forecasts were revised up to 3.6 per cent for 2016.
“Our upwards revisions in price forecasts reflects the strength in prices to date.
Over the last six months, Sydney and Melbourne prices have increased by an annualised rate of nearly 19 per cent and 12 per cent respectively,” Mr Oster said.
“However, while there is significant amount of uncertainty over the outlook for prices, we expect that this renewed momentum in the housing market is unlikely to be sustained over the longer term.”
Looking out to 2017, NAB forecasts prices to be flat across most capital cities, with falls particularly in Perth, Melbourne and Brisbane.
While the declines in Perth largely reflect economic conditions, the falls in Melbourne and Brisbane can be partly attributed to added supply and weaker investor demand.
“NAB is forecasting a much softer residential property market, with 0.5 per cent growth in house prices and nearly 2 per cent decline in unit prices in 2017,” Mr Oster said.
NAB Economics continues to hold the view that residential property prices are unlikely to experience a sharp ‘correction’ without a trigger from a shock that leaves unemployment or interest rates sharply higher.
The Residential Property Survey series also measures foreign buyer activity in the Australian housing market.
Market share of foreign buyers in new Australian housing markets fell for the third straight quarter in a row – to 10.4 per cent.
A sharp fall in foreign buyer activity in Queensland was offset by growth in Victoria and a modest rise in NSW.
Market share of foreign buyers in established markets was unchanged at 7.2 per cent.
About 230 property professional participated in the Q2 Survey, the bank said.
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by Alan Thornhill
What happens now that Malcolm Turnbull has at least the 76 lower house seats that he needs to form majority government?
We can expect to see tight government, as the Prime Minister takes up the reins, to start his fresh three year term.
Not quite as tight, though, as the independent Bob Katter has suggested.
Mr Katter warned, not altogether seriously, that a government with a majority of one, might lose a critical vote, if he left Parliament to attend his mother’s funeral, or to respond to a call of nature.
That’s not a worry
Australian parliaments, thankfully, have civilised arrangements called “pairing” to deal with exigencies like these.
The Opposition Leader, Bill Shorten, though, did raise as serious matter, when he warned of divisions in the Liberal party, particularly those involving the hard right, which supported Tony Abbott against Malcolm Turnbull, last September.
They have not forgotten or forgiven.
That became clear this week, when one member, Cory Bernardi, sent e-mails to supporters, urging them not to “… allow the political left to keep eroding our values, undermining our culture and diminishing our important institutions.”
The ratings agency, Standard and Poors, delivered the biggest challenge Mr Turnbull will face late last week, though, when it put Australia’s triple A credit rating on “negative watch.”
It cited both uncertainties which then existed about the July 2 election results and high levels of both domestic and international debt.
This means that the agency might well downgrade Australia’s presently excellent credit rating, if we don’t get those issues under control, over the next two years.
An astute Prime Minister might see it as more than that, too.
A “get out of jail free card” in fact.
Even governments which want to keep their pre-election promises often find it very difficult to do so.
So what could Mr Turnbull do, if he finds himself in that all-too-likely position?
Mr Shorten warned, during that eight week election campaign, that this is no time to be giving big companies $50 billion worth of tax cuts, over 5 years, even if they are to be phased in slowly.
And a report funded by Getup and published just days before the election said big miners and cigarette companies would be among the main winners, from that policy, which Mr Turnbull repeatedly said would create more “jobs and growth.
The miners, perhaps.
The cigarette companies.
So some adjustments can be expected there.
Nick Xenophon might also be in for some disappointment when he comes to Canberra, seeking more money, to protect the jobs of steel workers, in his home State of South Australia.
Mr Turnbull might even be able to convince voters that some restraint in these areas is virtuous, as well as necessary, to avoid extra interest rate pain, for home buyers and others.
If he is astute enough.
Weathercoast by Alan Thornhill
A novel on the murder of seven young Anglican Christian Brothers in the Solomon Islands.
Available now on the iTunes store.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
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