Wednesday, December 17, 2008

RBA reserved all summer

AUSTRALIA'S Reserve Bank has declared 'time-out' after four consecutive months of interest rate cuts saying it needs "a period of assessment.. over summer".

The news, in the minutes of its latest board meeting, came as the United States Federal Reserve prepared to cut its funds rate to close to zero early this morning Australian time. (6.15 am AEDT)

Australia's cash rate stands at 4.25 per cent after a series of rate cuts since September which have sliced $570 off the monthly cost of repaying a $300,000 mortgage.

In signaling that they would take a break for summer the board members noted that they didn't normally meet in January and that they expected little new information that month.

During what the board referred to as a "two month break" it said members would be able to assess the effects of the 3.00 percentage point cut to date "combined with the spending measures announced buy the government and the large depreciation oof the Australian dollar."

"Clearly the Reserve Bank board wants the summer off," said ANZ economist Warren Hogan...

"The market is now expecting little in January although it is still pricing in a further cut of 1.00 points by February".

The US Fed was expected to cut its funds rate from 1.00 percentage point to somewhere between 0.50 and zero points this morning in a last ditch effort to soften the US recession.

Australian Treasury research released today concludes that the US economy will almost certainly contract during the coming year and that the worldwide downturn will be worse than in 2001 and possibly worse than in 1991.

The betting agency CentreBet has began taking bets on whether Australia will enter a recession and is finding that the weight of money says yes. It will pay out only $1.12 to a punter who bets $1.00 that Australia will enter a recession in the year ahead, compared to a generous $5.50 to a punter prepared to say it will not.

The Reserve Bank board minutes report that household wealth has collapsed 11 per cent in the past year and that retail spending has weakened since the last official figures. Its liason meetings with retailers suggest that conditions are much weaker in NSW than in the rest of Australia.

The bank says employment indicators are weakening sharply. "The number of jobs advertised on the internet and in newspapers is falling and business surveys indicate lower hiring intentions. Members acknowledge that these data suggested unemployment was likely to rise in the period ahead," the minutes report.

Inflation is falling rapdily with the headline rate now expected to return to 2.5 per cent - the middle of the Bank's target band - by June.

Opposition Treasury spokesman Julie Bishop used the Bank's report to call on the gtovernment to prepare updated economic forecasts.

"The Government is operating in the dark about Australian jobs, it is introducing major economic changes yet it has not done the analysis or the modelling to show what the impact will be," she said.

1 comments:

Anonymous said...

Hope RBA has good holiday. They must be all tuckered out after flooding the market with $60B in government bonds. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aq2NW8dTNHjs

So, govt bonds of $60B on issue, and the US population is 15 times that of Aus, then that $60B is equivalent to about $900B. Just don’t call it a bailout, right?

Enter Naomi Klein (substitute Aus for US and Rudd or Swan for Bush): http://www.guardian.co.uk/commentisfree/2008/oct/31/useconomy-banking

The Bush gang's parting gift: a final, frantic looting of public wealth

"The US bail-out amounts to a strings-free, public-funded windfall for big business. Welcome to no-risk capitalism.

To further boost market confidence, the federal government has also unveiled unlimited public guarantees for many bank deposit accounts. Oh, and as if this were not enough, the treasury has been encouraging the banks to merge, ensuring that the only institutions left will be "too big to fail", thereby guaranteed a bail-out. In three ways, the market is being told loud and clear that Washington will not allow the financial institutions to bear the consequences of their behaviour. This may be Bush's most creative innovation: no-risk capitalism.

It is risky, of course, to interrupt the bail-out process. Nothing could be riskier, however, than allowing the Bush gang their parting gift to big business - the gift that will keep on taking.”

Full article worth a read.

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