Why you face double jeopardy on rates

Australians will face double jeopardy on interest rates this week.

The Reserve Bank has said, quite bluntly, that there could be “scope for further easing in monetary policy.”

So it could cut its marker interest rate – of 4.25 per cent – when its board meets on Tuesday to review rates.

The bank has already said that might happen “if demand conditions were to weaken materially.”

There is still doubt, of course.

Australia’s building industry is flat.

And recovery in its manufacturing sector has been slow, at best.

However the nation is also in the grip of a mining boom, with a huge pipeline of investment projects close to starting.

So the chances of another rate cut on Tuesday are still finely balanced.

Yet even if the Reserve Bank does cut rates this week, home loan, small business and other rates might not be cut.

That’s because Australia’s big four commercial banks rebelled last month, by raising their rates, even though the Reserve Bank kept its marker rate on hold.

That was a clear break with tradition.

The Reserve Bank chief, Glenn Stevens later supported the big four’s claims that their rises were necessary to recover increased borrowing costs.

Even though a European banker disputed that argument, saying that the European debt crisis has left money available, at historically low rates.

The big four, though, won’t be going back to their once traditional habit of automatically following Reserve Bank decisions on rates, any time soon.

And they probably won’t cut their rates, at least not immediately, even if the Reserve bank does lower its marker rate on Tuesday.

So home owners, builders and small business operators, who desperately want further rate cuts would, once again, be left out in the cold.

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Retail sales rise

Australians are spending more time – and money – in their local coffee shops.

So the Bureau of Statistics was able to report that retail sales rose – by 0.3 per cent – on seasonally adjusted figures last month.

This followed a fall of 0.1 per cent in pre-Christmas turnover in December.
The Bureau said January’s  rise was driven by a 6.6 per cent rise in cafe, restaurant and catering trade.

Clothing, footwear and personal accessory sales also rose, by 0.1 per cent.

But food sales were flat.

And Australia’s department stores saw their sales fall by another 0.2per cent.

But Australia’s  two  Territories saw big rises, with turnover in the ACT rising by 2.1 per cent last month, while sales in the Northern Territory jumped 3.5 per cent

Among the States, Queenslanders were Australia’s biggest spenders last month, with trade in the Sunshine State rising by 1.7 per cent.
Shoppers in the boom State of  Western Australia are also opening their wallets and purses  again.

Turnover in that State rose by 1 per cent last month.

Tasmanian shopkeepers, too, saw their turnover rise, by 0.1 per cent.

But these rises were offset by falls in New South Wales (-0.5%), Victoria (-0.4%) and South Australia (-0.3%).

In trend terms, turnover rose 0.1% in January 2012.

This follows a rise of 0.1% in December 2011 and a rise of 0.2% in November 2011.

More detailed industry analysis and further information on the statistical methodology is available in Retail Trade, Australia (cat no. 8501.0).

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Homes:a good time to buy

A fresh look at the market might be worthwhile,  if you have been thinking of buying a new house.

Reliable figures show that homes have become more affordable, in many parts of Australia, over the past year.

Two rate cuts have helped.

And there may be more to come, even though the big four banks recently raised their rates.

A survey, conducted jointly by the Housing Industry Association and the Commonwealth Bank, shows that  housing affordability has now risen over four consecutive quarters.

The survey partners say this shows conditions for home buyers are steadily getting better.

Their affordability Index improved by 2.2 per cent in the  three months to the end of December.

This took the cumulative improvement over the year to 8.3 per cent.

“A decrease in mortgage lending rates and continued earnings growth more than offset a modest increase in the median dwelling price to further improve housing affordability in the December 2011 quarter,”  HIA’s Senior Economist, Mr Andrew Harvey said.

“As expected, the interest rate cuts in November and December of last year saw housing affordability continue to trend in the right direction.

” When the recent improvements in affordability are considered alongside the easier access to skilled trades as home building activity has eased, it increasingly looks like a good time to buy a new home for those financially able to do so,” he added.

In the most recent quarter average weekly ordinary time earnings posted growth of 0.5 per cent and mortgage lending rates were down by a sizeable 0.25 percentage points.

And although home prices rose by 0.5 per cent in the December quarter, they were still down by 1.8 per cent over the year.

The survey showed that home affordability had improved in all Australian capitals – except Adelaide – in the final three months of last year.

Affordability in Sydney improved by 3.5 per cent.

Melbourne saw a 4.6 per cent improvement.

Brisbane’s affordability rose  by 7.9 per cent, Perth’s by 4.1 per cent, Hobart’s by 3.1 per cent and Canberra’s by 6.1 per cent.

Affordability in  Adelaide, though, fell by 3.6 per cent over the quarter.

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More rate cuts possible:RBA

The Reserve Bank is leaving the door open for further cuts in Australia’s interest rates.

It made this clear in the just published minutes of its board meeting earlier this month.

The minutes reflected a cautious but broadly optimistic assessments for both the global and Australian economies.

But the bank also explained that its board’s decision, earlier this month, to leave rates on hold might be changed in the months ahead.

The minutes said board members had “…judged that if demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy.”

That is an unusually frank admission, for the Reserve Bank.

The bank said, too, that while the financial situation in Europe remains “fragile,” the risk of an extremely bad outcome “seemed to have diminished somewhat over the previous couple of months.”

It said this partly reflects actions by the European policymakers.

“This, together with stronger economic data from the United States, had provided a mild boost to confidence in financial markets,” the bank added.

However the bank also admitted that “significant differences” still persist between different sectors in the Australian economy.

It said a big build up, in the nation’s investment queue, would play a key role in its economy, over coming years.

The bank said that  view of all this, its board had decided, earlier this month, to keep its cash rate on hold.

“With growth expected to be close to trend and inflation consistent with the target, the Board considered that this setting was appropriate for the overall macroeconomic outlook,” it said.

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ANZ customers “rightly angry” Swan

The Federal government says Australian families, with ANZ home loans, will be “rightly angry” with the bank for raising its interest rates.

The Federal Treasurer, Wayne Swan, who delivered that verdict,  also said what he would do, if he was an ANZ customer.

“…I’d be going down the road and seeing where I could get a better deal,” he said.

As expected, the ANZ today became the first of Australia’s big four banks to increase the rates it charges on most of its home and small business loans.

It increased its variable rates on most of its mortgages and small business loans by 6 basis points, even though the Reserve Bank decided, earlier this week, to keep its marker interest rates on hold.

But Westpac quickly followed suit, with a bigger rise.

Its customers will face a 10 basis point rise.

Builders, too, criticised the ANZ, with the Housing Industry Association describing its decision as “unfathomable.”

“The (ANZ’s) decision to increase rates in the same week as the RBA left official cash rates on hold is an immediate blow to families, small business and the economy,” the HIA’s Managing Director, Shane Goodwin said.,

“And the universal condemnation that the bank can expect is justified,” Mr Goodwin added.

His statement  was issued before Westpac’s announcement.

The Commonwealth and the National Australia Bank are studying the ANZ’s decision very closely.

The ANZ insisted, though, that its rates would remain “competitive.”

It said its 6 basis point rise add  just $6.50 a fortnight to repayments on the average home loan of $280,000.

“For small-to-medium sized business customers, the increase will add $3.00 per fortnight to an average loan of $130,000,” it added.

                                        ” We’re rock solid” Swan

Mr Swan also welcomed a detailed statement on monetary policy, that the Reserve Bank has just made, saying it shows that Australia’s economic fundamentals are “absolutely rock solid.”

“We have contained inflation, we have solid growth, we have low unemployment, “ Mr Swan said.

“And we have a huge pipeline of investment.

So I think the message from the RBA today is a reminder to all of the doomsayers and naysayers that we do have a strong economy.

“ We have low unemployment.

“We have bright economic prospects .

“But we do understand that in this environment, particularly with what’s going on globally there are also pressures in our economy…” Mr Swan said.

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Rates:up they go

As expected, the ANZ today became the first of Australia’s big four banks to increase the rates it charges on most of its home and small business loans.

The bank said it would increase its variable rates for mortgages and small business increase by 0.06 per cent.

However the bank also said it would reduce the rate it charges on its three year fixed rate package mortgages by 0.15 per cent.

These figures reflect a carefully measured response to the higher funding costs the ANZ – and Australia’s other big banks -  now have to meet as a result of pressures arising from the European debt crisis.

The Commonwealth, Westpac and National Australia Bank will be studying the ANZ’s announcement very closely.

But the Federal government won’t be impressed.

The Treasurer, Wayne Swan, says the big four banks have “huge profitability.”

He is advising customers of banks which raise their rates  to “walk” to get a better deal from credit unions, smaller banks or other financial institutions.

The ANZ insisted, though, that its rates would remain “competitive.”

“ The 0.06% increase would add $6.50 per fortnight to the average home loan of $280,000,” the bank said.

“For small-to-medium sized business customers, the increase will add $3.00 per fortnight to an average loan of $130,000,” it added.

“ Most customers will not need to make additional repayments with 85 per centof ANZ mortgage customers already ahead on their repayments,” the bank added.

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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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