Tuesday, November 02, 2010

The Reserve is ready to hike. It might.

The Reserve Bank is gearing up to publicly sell a 0.25 point rate rise, scheduling both a major economic statement and an appearance before a parliamentary committee within weeks of today's Melbourne Cup Day board meeting.

A move today would be followed by near-instant responses from the big banks with Westpac and the ANZ having signaled plans for outsized increases to recoup what they say are increased funding costs.

Each bank will face a public relations problem doing so, the ANZ having announced a 53 per cent jump in profit to $5 billion last Thursday and Westpac due to announce its profit Wednesday.

The National Australia Bank has set itself apart from the pack by declining to add on a series of extra increases, opening up a 27 point gap with Westpac offering a standard variable rate of 7.24 per cent compared to 7.51 per cent...

Further restraining banks will be a Senate inquiry due to report in March and the attention ANZ chief Mike Smith attracted when he compared Coalition Treasury spokesman Joe Hockey to the communist president of Venezuela.

An Essential poll released yesterday shows overwhelming support for Mr Hockey in his campaign to restrain outsized rate rises with 82 per cent of Coalition voters believing banks should be forced to keep rate moves in line with Reserve Bank moves, and 87 per cent of Labor voters agreeing.

An even higher 93 per cent on both sides want laws to ensure bank fees are no higher than the actual cost of the service, and 88 per cent of Labor voters and 83 per cent of Coalition voters want legislation to cap bank cheif's salaries.

Asked whether the government should set up a bank of its own to compete with the private banks 68 per cent of Labor voters said yes as did 60 per cent of Coalition voters and 72 per cent of Green voters.

Treasury executive Jim Murphy revealed at a Senate hearing last month the department was amassing information for the Treasurer to use to hold to account any bank that increased rates by more than the Reserve Bank.

Although opinion at the past two Reserve Bank board was finely balanced on the question of when to increase rates, there was agreement rates would have to rise "at some point".

Benign inflation figures saw futures trading cut the implied probability of Melbourne Cup Day hike from 49 to 14 per cent, but it has since edged up to 21 per cent on the realisation Reserve Governor Glenn Stevens has set up a round of opportunities to sell a rate hike beginning this Friday.

His previously-scheduled quarterly statement will be followed on November 26 by an appearance before a parliamentary committee penciled in on Friday.

House price figures released yesterday provided little support for a move with the national index climbing just 0.1 per cent in the September quarter. The Performance of Manufacturing Index rose 2.1 points to 49.4 but is remained below the 50 point level at which plans to expand balance plans to contract.

Published in today's SMH and Age

What Essential discovered:

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