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19 December 2008 - Chamber of Commerce urges the RBA to meet in January

The nation’s peak industry group wants the Reserve Bank to cut interest rates at an unscheduled January meeting after further evidence of weak business investment and a poor jobs outlook.

The Australian Chamber of Commerce and Industry (ACCI) is calling on the RBA to further ease monetary policy after it slashed rates by three percentage points during the past four months.

The Westpac-ACCI survey of industrial trends for the December quarter of 2008 showed deteriorating demand for labour, falling business expectations and investment, exacerbated by the credit crunch.

“Weak demand, plunging confidence and profit expectations, lower capacity utilisation and an increased difficulty of obtaining finance have seen a marked deterioration in investment plans to multi-decade lows,” the survey said.

It said concerns over accessing finance were at their worst levels for more than three decades.

ACCI’s director of industry policy and economics Greg Evans told reporters it was an issue that needed to be addressed.

“The last six of months of 2008, it’s been a very difficult period for Australian business in terms of trading conditions and the different policy responses of government … certainly couldn’t have come soon enough,” he said.

“Looking into 2009, equally business conditions are going to be very difficult and we don’t think there is any time to waste on policy responses.”

Mr Evans urged the RBA to meet in January - a month earlier than scheduled - to consider a further cut in interest rates.

“We believe there is enough information available … which points to the need for further interest rate reductions,” he said.

But the RBA doesn’t appear to be planning on a January meeting.

In the minutes of the RBA’s December meeting, released this week, the bank indicated it had cut the official cash rate by 100 basis points before Christmas to give it time to sit back and assess the impact of rate cuts and government economic stimulus measures.

AAP
 
17 December 2008 - Rate cuts slashing mortgage stress: HIA

Mortgage stress is easing in direct correlation to the RBA's rate cuts, according to the Housing Industry Association.

The industry group reported that the number of Australians experiencing mortgage stress has dropped from 31% in August to 21% in December.

The RBA has been cutting rates since September, slashing the official interest rate by 300 basis points and effectively undoing 12 rate rises that have occurred between 2002 and 2008. The latest cut dropped the official cash rate down to 4.25%.

Its actions have saved some 350,000 households from mortgage stress - which occurs when a household spends 30% of more of its income on mortgage repayments.

Ben Phillips, HIA economist, said borrowers with an average $250,000 standard variable mortgage were now saving $450 a month in loan repayments.

Brisbane borrowers experienced the biggest drop in mortgage stress levels. The proportion of borrowers in the Queensland capital feeling mortgage pain dropped from 32.7% in August to 13.4% in December. Meanwhile Sydney borrowers are still doing it tough; the HIA estimates 28.5% of Sydney borrowers continue to feel the pinch.
 
11 December 2008 - Rate cut in January possible; RBA

 

The Reserve Bank of Australia (RBA) has left open the possibility of a January interest rate cut should a big financial event occur.

In his last public address for the year, RBA governor Glenn Stevens said the central bank had not scheduled a January board meeting although nothing had been ruled out.

The RBA usually meets on the first Tuesday of every month - except January - but did slash interest rates in January 1992 in the aftermath of the last recession.

When asked where he would be on the first Tuesday of January 2009, Mr Stevens said: “I will not be at the office, but I won’t be far from the office.

“No meeting has been scheduled for this time.

“In truth, the option is open in any month to do something inter meeting if there’s a big event to cause it.”

Mr Stevens told the Australian Business Economists annual dinner in Sydney on Tuesday he could call his fellow RBA board members in an emergency.

Debt futures markets are already expecting the RBA to cut interest rates by 25 basis points in January, following from this month’s 100 basis point which took official interest rates to a six-and-half-year low of 4.25 per cent.

JPMorgan chief economist Stephen Walters said the RBA governor’s comments left open the possibility of a rate cut announcement on January 6, if the global financial crisis worsened.

“The governor suggested that with the uncertainty, they may have to be prepared to be nimble and ready to act, and every other central bank is prepared to do the same thing,” Mr Walters said.

However, St George chief economist Besa Deda said the chance of a January interest rate cut was slim.

“We attach the probability of a January rate cut as low, but much will depend on the credit crisis and if any new nasties rear their head,” Ms Deda said.

Ms Deda said the RBA was more likely to cut rates in February - it’s next scheduled board meeting - by either 50 or 75 basis points.

A half a percentage point rate cut would take the cash rate to 3.75 per cent, its lowest level since November 1967.

ICAP senior economist Adam Carr said there was nothing in Mr Stevens’ speech that screamed “another bout of cuts” in January or February, though nothing was ruled out.

Mr Stevens said in the speech that consumers were yet to respond to lower interest rates and falling petrol prices.

“Consumer spending, which slowed significantly in the period from about February to June as interest rates and petrol prices rose, has remained slow since, even as interest rates and petrol prices have fallen significantly.”

Mr Stevens said households were more likely to be more cautious about debt in future “over the next couple of years”.

The RBA has slashed official interest rates by 300 basis points since September, reversing the 12 rates rises between mid-2002 and March 2008.

In January, Barack Obama will be sworn in as the 44th president of the United States, which Mr Stevens said would likely boost confidence.

“The inauguration of a new US administration is a key opportunity,” Mr Stevens said.

“The economic downturn has been deepening during the transition period.

“But if the new team can announce credible plans to accommodate the necessary adjustments in the US economy, confidence in medium-term prospects can be rebuilt.”

AAP
 
3 December 2008 - Most banks quick to cut rates

 

Most of the big banks have wasted no time in announcing rate reductions but not all have decided to hand back the full one per cent cut delivered by the RBA yesterday.

NAB and CBA revealed shortly after the RBA rate announcement that they would pass the 100 basis point reduction on, bringing their standard variable rates to an equal 6.74 per cent.

However Westpac said it would only pass on 80 basis points to its borrowers, leaving its standard variable home loan rate to 6.91 per cent – 17 basis points higher than its peers.

ANZ announced later in the day that it would pass on 83 basis points of the rate reduction leaving its standard variable rate on par with Westpac.

NAB executive director and chief executive Ahmed Fahour said “home loan rates at levels not seen since 2003 is certainly a great way to close out the year”.

A borrower with a $300,000 home loan now looks set to save a further $200 per month on home loan repayments as a result of the reduction.

 
3 December 2008 - Property market to pick up on back of rate reductions

 

Another sizeable rate cut from the RBA yesterday is welcome news for the mortgage industry and could now spark recovery in the property market in early 2009.

The cash rate hit a six year low of 4.25 per cent yesterday taking the RBA’s total cash rate reduction since September to three per cent – a record rate fall within the space of four months.

Christopher Joye, chief executive of research group Rismark International, told Mortgage Business that yesterday’s rate cut combined with the previous two per cent would translate into “surprisingly strong” buying activity in the new year.

“Households have benefited from a 31 per cent reduction in their interest servicing costs since August this year. That represents a huge improvement in affordability, which will be another fillip for the residential property market,” he said.

Mr Joye said home loan rates could even fall below six per cent in the first half of 2009 as the cash rate would likely drop below four per cent.

The substantial reduction in interest rates would stimulate all new home buyers, he said, be they first time buyers or simply up-graders.

Mr Joye was also upbeat about the outlook for property prices for 2009, despite “erroneous predictions from the doom and gloom merchants”.

“I expect to see residential property prices rise very slowly during the first half of 2009, given that housing demand of 190,000 homes per annum is running well in excess of housing supply of about 145,000 per annum,” he said.

 

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