RBA talks of a rate cut

The Reserve Bank is now prepared to talk about cutting rates, when its board next meets on May 1.

It did so, quite clearly, in the minutes of its last board meeting, on April 3.

“ If slower growth in demand could be expected to result in a more moderate inflation outcome, then a case could be made for a further easing of monetary policy,” the bank said, in those minutes which have just been released.

Wow.

Indeed, the bank even became expansive on the subject, adding: “ The Board would have the opportunity at its next meeting to review the inflation outlook based on comprehensive new data on prices, as well as information on demand and output.”

“Prudence,” though, is still a decisive word in the board’s vocabulary.

“Members judged it prudent to evaluate those data before considering a further policy adjustment,” the board added, in those minutes.

Those words, of course, referred to the board’s last meeting, not the next.

And who really know what the Board will do, when it meets on May Day?

Even in the latest minutes, though, it was prepared to admit that there are already some flat spots in the Australian economy.

The critically important services sector, for  example.

“Service exports had also been weak, “ the bank said.

It said this reflects “a decline in the number of visas for foreign students as well as the effects of the higher exchange rate and lower external demand.”

The bank, though, sought to justify its wait and see attitude, by saying some hot data would be coming up, before the May 1 meeting.

“The Board would have the opportunity at its next meeting to review the inflation outlook based on comprehensive new data on prices, as well as information on demand and output,” the minutes said.

“Comprehensive, “ of course, means the full picture.

So, no doubt, the developments, to be taken into account, will include TV pictures of some 350 Toyota workers being escorted off the site of that car maker’s Altona plant, because they have lost their jobs

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A rate cut?

A rate cut next month is still likely.

The minutes of the Reserve Bank board’s last meeting, on April 3, make that clear.

They recall that the Board last eased monetary policy late in 2011.

“Since then members had lowered their assessment of the pace of growth somewhat,” the minutes say.

“If  slower growth in demand could be expected to result in a more moderate inflation outcome,  then a case could be made for a further easing of monetary policy,” they add.

However, the board added a caution.

It said it would have the opportunity, at its meeting on the first Tuesday in May, to “review the inflation outlook.”

It said that evaluation would be based on “comprehensive new data on prices, as well as information on demand and output.”

The minutes said the board had thought it prudent, at its last meeting, to evaluate that data “before considerinf a further policy adjustment.”

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Assessing clean energy investments

The Federal government is to establish a Clean Energy Finance Corporation to assess investments in low emission technologies.

The Federal Treasurer, Wayne Swan, and three other ministers, made the announcement today.

They said the necessary legislation would be introduced into Parliament in the budget sittings which start next month.

The four ministers were releasing the report of a Review Panel, which has been assessing a proposal to establish the planned corporation

“The Gillard Government is building a clean energy future which will strengthen our economy and protect our environment,” Mr Swan said

“And the CEFC is a vital part of that reform agenda

“In the future the most competitive and most productive economies will be substantially powered by cleaner energy,” the Treasurer said.

“The CEFC will play a crucial role in driving the investment we need to develop and deploy those new technologies.”

Mr Swan said the new corporation would commence operations in July next year.

“The CEFC will bring to bear the utmost rigour in assessing its investments,” Mr Swan said.

“But (it) will also give effect to its important public policy objectives by facilitating transactions where they may face barriers to private investment,” he added.

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What we are reading

Europe’s Economic Suicide, by Paul Krugman

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We borrow less

We are borrowing less – and saving more.

A new report, confirming this trend, follows other data showing that consumer confidence is still weak.

The Bureau of Statistics reported today that housing finance fell by 4 per cent in February, while borrowing for personal finance dropped by 3.8 per cent, from the January level.

Commercial finance fell by 8.4 per cent, also on seasonally adjusted figures, over the same time.

However lease finance rose by 4.1 per cent.

Our recent habit of saving more has been noted in several studies, notably by the Reserve Bank.

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We won’t cut “frontline services” Government

The Federal government declared today that it would not be cutting “front line” services in next month’s budget and that it would produce a budget surplus.

The Assistant Treasurer, David Bradbury, told reporters: “We will not take a razor to front line services.”

But he added: “It is essential that we return the budget to surplus, because (that) is in the interests of the Australian economy.”

The Greens have declared they will fight any attempt by the government to use cuts to the public service, family benefits or research and development funding to return the budget to surplus.

New Greens leader Christine Milne said her the party would pursue more spending measures, including a rise in unemployment allowances, a national dental health scheme and a boost to schools funding, instead.

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Wayne Swan’s new message

Wayne Swan is now talking of a “balanced” budget.

“This will be a balanced Budget,” he said in a paper just published.

“Balanced in that it charts a responsible middle course and balanced,” he added.

“ In that it gets us back in the black well before our peers.

“Most importantly it’s a Budget right for the challenges we face today and right for building on our unique strengths for a future in the most dynamic region in the world.”

Don’t panic.

Mr Swan is still promising to produce a surplus in his Federal budget, next month.

Even though he did use the s-word only twice, in his weekly “economic note.”

“ Returning to surplus will also ensure the Reserve Bank has the flexibility for further interest rate cuts if it thinks that’s necessary,” Mr Swan said.

Treasurers never choose their words more carefully than they do in the weeks leading up to a budget, when pre-budget speculation peaks.

Mr Swan is an old hand at all that, now.

So what, really, is his message here?

Elsewhere in his note, Mr Swan warns, yet again, that revenue will be below already forecast levels in the new financial year.

“Since the global financial crisis struck, we’ve been forced to write-down government tax revenues by $140 billion, and as I’ve indicated there will be more write-downs in next month’s Budget.,” he admits.

He declares, too,  that job creation is still a prime target for the government.

Mr Swan knows, very well, that there are conflicting elements in his note.

He is inviting his readers to interpret what he is saying.

Our guess is that his underlying message goes something like this.

“Yes, there will be a surplus.

“But it won’t be big.

“Our approach will be balanced.”

Nice word, that.

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ANZ raises rates despite “massive” profit

The Federal Treasurer, Wayne Swan, is trying to hold the line on interest rates, after the ANZ bank raised its home loan and small business rates by 6 basis points.

Mr Swan bluntly rejected the ANZ’s claim that rising costs had forced it to act, saying that its latest rise flies in the face of Reserve Bank advice that those costs had eased.

The ANZ’s Chief Executive Officer, Philip Chronican was equally blunt.

He said: “The funding environment changed quite dramatically in late 2011 as a result of the economic and financial crisis in Europe.

“This has seen wholesale funding costs rise and competition increase dramatically among banks for deposits,”Mr Chronican said.

This is the second time the ANZ has raised its rates outside the traditional cycle, in just two months.

The rise adds $14 a fortnight to repayments on a typical  $300,000 ANZ mortgage.

All big four banks raised their interest charges last month, even though the Reserve Bank has been keeping its marker rate on hold, over recent months.

That was seen, by some, as a bank revolt.

Previously, the banks had only moved their rates, when the Reserve did so.

The Reserve Bank has insisted, since then, that its marker rate is still the biggest single influence on home loan rates.

However, the ANZ’s latest announcement raises fresh doubts about that.

Mr Chronican said:“We accept our response to the new funding environment is difficult for some of our customers – even though deposit customers have benefited from better rates.

“Given this and the volatility we have seen in wholesale funding markets, we wanted to ensure these costs were sustained before we acted to pass them on,” he added.

“ We also wanted to pace increases in a way that was manageable for our customers and ensured we were competitively positioned.”

But Mr Swan was not impressed.

”There would be a lot of ANZ customers very upset about this decision to jack up rates, coming after their recent massive profit announcement and staff sackings,” he said.

”ANZ’s decision to whack its customers at a time when many of them are doing it tough flies in the face of recent Reserve Bank statements saying funding costs for banks have eased,” Mr Swan said.

Despite that, the other big banks may well decide to raise their rates, too.

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