Super funds hit hard
Australian superannuation funds have lost A$91 billion in the year to September 30, the equivalent of about 8% of the nation’s economic output, as the global credit crisis devalued assets globally, according to data released by APRA, said Bloomberg. >>> more
US Fed slashes rate to zero-0.25%
The Federal Reserve cut the main US interest rate to “a target range” of between zero and 0.25% and said it will do whatever is needed to end the longest recession in a quarter-century and revive credit. >>> more
Banks ignored loan risk warning
Australia's biggest banks were "relaxed" about the high number of mortgage defaults in western Sydney and "sanguine" about the quality of secured housing stock, according to Reserve Bank accounts of confidential meetings with the lenders. Despite warnings from regulators to be more careful when lending money, the big banks persevered with low-document loans and high loan-to-value ratios - even as the number of customers in arrears increased - to see off competition from smaller lenders. >>> more
Interest rate cut creates 43,000 losers
The 43,632 borrowers who opted for fixed-rate mortgages between March and August this year, when interest rates were at a decade-high peak, face hefty fees if they now want to switch back to a standard variable loan. >>> more
A big 1.00% cut
"Weighing up the international and domestic developments of recent months, the Board judged that a further significant reduction in the cash rate was warranted now, to take monetary policy to an expansionary setting. As a result of today’s decision, the cash rate will be at its previous cyclical low point. Given trends in money market yields, most lending rates should fall significantly and will also reach below-average levels". >>> more
RBA cuts rates to 4.25%
The Reserve Bank has slashed its key interest rate by more than expected in its latest effort to prevent Australia's economy from sliding into a recession. The central bank lopped a full percentage point, or 100 basis points, off its key cash rate, reducing it to 4.25%. That level matches its previous record low - reached in the wake of the 9/11 terrorist attacks in the US in 2001 - since the RBA began targeting rates about two decades ago. >>> more
A mountainous bet
An academic predicting a collapse in house prices has made a bet with Macquarie Group economist Rory Robertson ("Rate Cut Rory") that commits the loser to walk from Canberra to the top of the nation’s highest mountain. A forecast by University of Western Sydney Associate Professor Steve Keen that house prices will collapse by 40%, double the current plunge in the US, has a 1% chance of being correct, Robertson was reported by Bloomberg as saying. >>> more
Babcock on the brink
The debt-stricken investment group Babcock & Brown was clinging to its corporate life as it sought to persuade one of its key bankers, HypoVereinsbank, to release a substantial sum of the company's own money to which the lender has frozen access. However, the German bank has struck its own troubles and Hypo Real Estate, a lending arm associated with the bank, was forced to receive E50 billion (A$100 billion) recently as part of the German Government's bailout. >>> more
More rate cuts coming
Australia's central bank signaled it's prepared to add to the most aggressive interest-rate cuts in 17 years as it tries to ensure the economy sidesteps a looming global recession. The bank cut its 2008 economic expansion forecast to 1.5% from 2% and said it had been forced to make ``unusually large'' reductions in the overnight cash rate target in October and November because renewed global turmoil raised the risk growth will stall. >>> more
Budget takes a $40 billion hit
Australia's economy will slow, unemployment will rise and the Federal Budget will take a $40 billion hit from the global economic crisis, according to the Government's mid-term economic forecasts. The financial woes mean that economic growth will slow to 2% in 2008-09, down from the 2.75% growth predicted in the May budget. Growth for 2009-10 was cut to 2.25%, compared to a budget forecast of 3%. >>> more
Allco: an investor's tragedy
It was just a matter of time. Another tranche of bull-market heroes has bitten the dust, victims of leverage and their own greed and ambition. The Allco boys were pretty special though, some of the smartest guys in the boom, and veritably outdone by their own smartsambition. >>> more
RBA slices another -0.75%
"Consumer price inflation in Australia remained high in the September quarter. As expected, CPI inflation in year‑ended terms picked up to 5 per cent, while underlying measures were just over 4½ per cent. Nonetheless, capacity pressures are now easing and, given the outlook for more moderate growth in demand and activity, it is reasonable to expect that inflation in Australia will soon start to fall. Global disinflationary forces will assist in this regard, though the depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise be the case". >>> more
No need to fear house price dive, says RBA
House prices in Australia are not set for precipitous falls, as in the US, nor are household balance sheets suffering too badly, says the Reserve Bank deputy governor, Ric Battellino. >>> more
First-time buyers storm housing market
First home buyers captivated by the lure of $21,000 in new government grants have stormed builders and real estate agents in search of bargain.The mini-boom was the most tangible sign yesterday that Prime Minister Kevin Rudd's $10.4 billion economic rescue package was taking effect. >>> more
Home buyers face cost blowout
There could be further pressure on home-buyers seeking to get a foot into the residential housing sector after the peak body for builders reported costs were racing ahead of inflation. >>> more
Banks are safe: Wood
Although the unlocking of bank lending in world markets won't happen overnight, lending between banks will resume, the key to restoring credit flows to business and households. The turning point was the announcement of injections of large sums of government money to recapitalise banking systems in the US, Europe and Britain. >>> more
Tackling panic
The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the worst financial crisis since the Great Depression. The Danes, however, have been caught in a currency trap, and raised their official rates. >>> more
RBA eases credit even more
The RBA has announced a significant expansion of domestic market facilities for authorised deposit-taking institutions, to meet the crisis in "global money markets [that] have deteriorated significantly". >>> more
RBA slashes rates 100 bps
"Given [the international tumoil], the Board judged that a material change to the balance of risks surrounding the outlook had occurred, requiring a significantly less restrictive stance of monetary policy. The Board also took careful note of movements in funding costs in wholesale markets. Having weighed these considerations, the Board decided that, on this occasion, an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers. The Board does not, however, regard that movement as establishing a pattern for future decisions". >>> more
Banks turn to Future Fund for cheap cash
Three of Australia's biggest banks tapped long-term loans from the Future Fund as cash dried up from other sources in the wake of the collapse of US investment giant Bear Stearns. Documents obtained by The Australian under Freedom of Information laws show the ANZ, Westpac and the National Australia Bank obtained funding for as long as 10 years. >>> more
Rates set to be slashed - will banks follow?
Interest rates will be cut deeper and faster than previously expected, as the global financial crisis continues to bite. Financial markets are expecting the Reserve Bank to cut the official cash rate by 50 basis points on October 7, bringing the rate to 6.5%. Banks are refusing to guarantee they will pass on the cuts in full and analysts have warned they are unlikely to. >>> more
Bank run hits Hong Kong
For the first time since the Asian financial crisis more than a decade ago, Hong Kong has faced a bank run. Hundreds of depositors lined up at the city's third-largest lender Bank of East Asia as the bank hit out at ``malicious rumors,'' and Chairman David Li rushed back to Hong Kong from the US to reassure clients and investors. The city's central bank jumped to BEA's defense and police said they're investigating phone text messages questioning its health. >>> more
Regulators in pact to respond to any financial crisis
Financial regulators have forged a pact for a joint response to any financial emergencies that emerge. The move is designed to avoid the lack of co-ordination that has hampered efforts in the United States to respond to the crisis. The agreement struck between Treasury, the Reserve Bank, APRA and ASIC says that private sector or market-based solutions are the preferred means of responding to financial system distress.
>>> more
Australia surviving financial storm
The turmoil in global financial markets continues to have muted impact on the profits of Australian banks or the ability of homeowners to repay their loans, the Reserve Bank of Australia said in its September Financial Stability Review. They also noted "The general increase in uncertainty has also meant that most banks are taking a more cautious attitude to lending and paying increased attention to their funding". >>> more
Australia's banks sound: IMF
Australia’s banks have demonstrated their soundness during the recent global financial turmoil, but some vulnerabilities remain, says the IMF in its latest report. >>> more
Aussie banks to ride out storm, says Murray
Former Commonwealth Bank chief David Murray has declared the investment banking model "broken", warning the Australian financial sector will pay for Wall Street's excesses even though local banks are well-placed to ride out the storm. >>> more
Economy in slowdown, but keeps growing
The economy slowed in the June quarter, according to today's national accounts figures, but fears it might signal the start of a slide towards recession proved unfounded. The Government was bracing for a poor growth result but instead Australia's real GDP rose by a seasonally adjusted 2.7% for the year to June. >>> more
First cut in seven years
Announcing a -0.25% cut of the cash rate to 7%, the RBA said "it is looking more likely that household demand will remain subdued and overall economic growth slow over the period ahead. Inflation is likely to remain relatively high in the short term, with the CPI affected by the high global oil prices in mid year and other increases in raw materials prices. But looking further ahead, the outlook for demand suggests that inflation in both CPI and underlying terms is likely to decline over time, provided wages growth remains contained. The Bank’s forecast remains that inflation will fall below 3 per cent during 2010." >>> more
RBA in a position to cut rates
Australia's central bank is in a position to cut interest rates from a 12-year high because consumers have trimmed spending enough to cool the economy and inflation, said Deputy Governor Ric Battellino. "We cannot wait to see a fall in inflation before we start cutting rates because by then it would be too late," Battellino told a parliamentary committee in Sydney. "We try to be pre-emptive when we start tightening and pre-emptive when we start easing". >>> more
Easing bias
"Weighing up the available domestic and international information, the Board
judged that the cash rate should remain unchanged this month. Nonetheless, with
demand slowing, the Board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing". >>> more
Critical months ahead
The next three months could be critical. If what has happened so far is just a one-off adjustment to higher interest rates and perceptions of risk, then the economy will just have a below-average year or two before resuming its course. But if activity keeps falling, and the job losses keep mounting, business and households will pull in all sails to ride out the storm. That's when the Reserve will have to change tack, and start loosening rates, even if inflation remains high. >>> more
Rates signal credit heat is rising again
The subprime credit crisis, like a sturdy young'un, is going from strength-to-strength as it approaches its first birthday, with troubling consequences for Australian borrowers. >>> more
Looking the other way on inflation
"Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation. On balance, while the inflation outlook remains concerning, the Board’s assessment continues to be that demand growth will be moderate this year. The most recent flow of information has given additional support to that assessment. Inflation is likely to remain relatively high in the short term, and the CPI will be further boosted in coming quarters by the recent rises in global oil prices. Looking further ahead, inflation in both CPI and underlying terms should decline over time, provided demand continues to evolve as expected." >>> more
Rates staying high
Interest rates will have to remain high for as long as the commodities boom lasts, with Reserve Bank governor Glenn Stevens making no apology for the pain being inflicted on parts of the nation missing out on the mining riches. >>> more
Fears we're on stagflation path
Falling employment and rising inflationary expectations are raising fears that the economy is headed for a period of stagflation, last experienced in the 1970s. >>> more
Shock drop in jobs
Australia's economy shed jobs in May, a surprising slump that snapped 18 months of jobs growth, relieving pressure on the Reserve Bank to raise interest rates further to cool demand. >>> more
RBA: We've got it about right
"Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation. On balance, the Board’s current assessment is that demand growth will be moderate this year. In the short term, inflation is likely to remain relatively high, but it should decline over time provided demand evolves as expected. Should demand not slow as expected, or should expectations of high ongoing inflation begin to affect wage and price setting, that outlook would need to be reviewed." >>> more
Money supply now $1 trillion
The broad measure of Australia's money supply, M3, pushed on through $1 trillion at the end of April 2008. It grew at 20% year-on-year, although that growth rate was slower than at any time in the past six months. >>> more
Companies stuck in subprime mire
The credit crunch arising from the US subprime mortgage crisis has started to hit Australian small and medium enterprises, affecting their investment decisions and growth plans. >>> more
Investment growth slows
Australian business investment growth probably slowed in the first quarter, adding to signs the highest borrowing costs in 12 years are prompting companies to review spending plans. >>> more
Budget won't take pressure off inflation
Market economists agreed. The Government has produced a reasonable budget, but not one that will take the pressure off inflation or interest rates. >>> more
CRT held again, but inflation a worry
"Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation. On balance, the Board’s current assessment is that demand growth will remain moderate this year. In the short term, inflation is likely to remain relatively high, but it should decline over time provided demand evolves as expected. Should demand not slow as expected or should expectations of high ongoing inflation begin to affect wage and price setting, that outlook would need to be reviewed." >>> more
Higher rates from broader objective
Australia's monetary policy has arrived at a critical point, and how the Reserve Bank handles it will have profound long-term consequences for the economy and the central bank itself, indeed for all of us. >>> more
Swan: Global downturn to keep rates, inflation high
Australians should brace for a tough budget and a protracted period of high interest rates as the Federal Government tackles an unstable international outlook and inflation, the Treasurer, Wayne Swan, warned after attending meetings of the International Monetary Fund in Washington. >>> more
RBA holds CRT
"Sentiment in global financial markets remains quite fragile and Australian financial intermediaries are experiencing increases in funding costs, which are being passed on to borrowers. Some tightening in credit standards for more risky borrowers is occurring.As a result of the recent monetary policy decisions and rises in borrowing costs that are occurring independently of changes in the cash rate, the overall tightening in financial conditions since the middle of 2007 has been substantial. That is working to foster the moderation in demand growth that will take pressure off inflation. In the short term, inflation is likely to remain relatively high, and both the CPI and underlying measures will probably rise further in year-ended terms in the March quarter. However, inflation should decline over time, provided demand slows as expected". >>> more
Higher bank rates, raisings on the cards
The double prospects of further mortgage rate increases outside officially-sanctioned Reserve Bank rises and possible capital raisings by the leading banks remains high even after across-the-board home loan increases this week of as much as 0.35 percentage points. >>> more
RBA lifts rates as expected
"This adjustment was made in order to contain and reduce inflation over the
medium term. Inflation was high in 2007, with an annual CPI increase of 3 per cent in the December quarter and underlying measures around 3½ per cent. Domestic demand grew at rates appreciably higher than the growth of the economy’s productive capacity over the year. Labour market conditions remained strong into early 2008 and reports of high capacity usage and shortages of suitable labour persist. Inflation is likely to remain relatively high in the short term, and will probably rise further in year-ended terms, before moderating next year in response to slower growth in demand". >>> more
Swann: Economy to remain strong as rates rise
Treasurer Wayne Swan said the nation's economy will remain ``very strong'' on high commodity prices, even as interest rates are expected to rise. >>> more
ANZ's higher exposure to Centro
A review of problem corporate loans on the books of the big five banks has revealed a larger than expected $680 million unsecured exposure by ANZ to ailing property group Centro. >>> more
RBA poised to lift rates
The Reserve Bank has predicted economic growth will slow considerably this year, but not by enough to halt the upward march of interest rates. The bank's hawkish statement, tipping a long period of high inflation even as the economy lost power in the months ahead, shocked investors. >>> more
Gross: Don't rescue the monolines
Bill Gross, the founder and managing director of US bond fund manager Pimco, attacks the ludicrousness of relatively small bond insurers guaranteeing the debt of America’s state governments and how the world’s financial markets were taken in by this. >>> more
Cost of bank switches to be cut
The government is fast-trackeding a Treasury plan to make it easier for customers to switch banks, by reducing fees, amid escalating anger at the banks' haste to raise mortgage rates faster than the Reserve Bank. >>> more
CBA's mortgage sting
Commonwealth Bank has added extra sting to the 0.25% rate rise by the Reserve Bank by lifting the interest rate on its variable home loans by 0.30%. >>> more
Westpac's $30 bil. adds liquidity to lending
Westpac has underlined the "dash for cash" needed to keep credit markets from seizing up amid the global liquidity crisis by disclosing that it has $30 billion to meet corporate borrowing demands. >>> more
Credit crunch lays siege to Macquarie
Macquarie Bank's troubled Fortress Notes suffered another calamitous fall in January, bringing their losses to $75 million or almost half their value since the global credit crunch hit in July. >>> more
RBA raises cash rate target
"Recent information points to significant inflation pressures. CPI inflation on a year ended basis picked up to 3 per cent in the December quarter, with underlying measures around 3 1/2 per cent. This was a little higher than was expected a few months ago. Indicators of demand remained strong through the second half of 2007, and reports of high capacity usage and shortages of suitable labour persist. In the short term, inflation is likely to remain relatively high and will probably rise further in year. Having weighed both the international and domestic information available, the Board concluded that a tighter monetary policy setting was needed now." >>> more
"Rate dip by year end"
Thousands of people will be affected by a widely-tipped hike in interest rates today but the rate cycle should turn around by the end of the year, Aussie Home Loan founder John Symond predicts." >>> more
Fed cuts again
The US Fed cut its rate again to 3%, saying "Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets." >>> more
New home sales fall under the weight of rate rises
New home sales fell in the final month of 2007, the second consecutive monthly decline, as higher interest rates and further pressure on house prices bit into the new home building industry. >>> more
Fed slashes rates to quell panic
In this emergency reaction, they said "The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets." >>> more
Credit unions to raise rates
Credit unions are being forced to raise their mortgage rates even if they are not directly exposed to rising wholesale funding costs, in a bid to prevent the major banks from luring away their deposit base. >>> more
Kangaroo bonds leave investors exposed
Australian superannuation investors have billions of dollars linked directly to US companies at the centre of the credit crisis, through the sale in recent years of unsecured "kangaroo bonds". Potential exposures include $1.2 billion raised in 2006 for Northern Rock in Britain, $1.6 billion for US mortgage provider Sallie Mae, and $925 million for US lender Countrywide. >>> more
Financial risk harder to track
The complexity of the global financial system and the imbalance of information available to market participants means the ability to track risk has declined "probably forever", Moody's has said. "It is extremely unlikely that in today's markets we will ever know on a timely basis where every risk lies," analysts at the ratings agency, led by chief international economist Pierre Cailleteau, wrote in a report. The warning touches on a hot topic in the credit crisis that engulfed markets in 2007. >>> more
Policy shift pushes up yuan
China's central bank is again revaluing its currency, the yuan - but in contrast to the sudden one-off move that jolted global markets in 2005, the current rise is being engineered over weeks and has been signalled. The yuan's sharp climb against the US dollar in the past few weeks, which Shanghai traders are calling a "mini revaluation", suggested the central bank was adopting a new approach to the currency market as it battled rising inflation, the Sydney Morning Herald reported. >>> more
Rates rise without the RBA
Two of Australia's biggest banks are to defy political pressure and raise interest rates for tens of thousands of homeowners. National Australia Bank will add 0.12% to its standard variable home loan, independent of any move by the Reserve Bank. The increase will take the bank's standard variable lending rate to 8.69%. Business loans will be increased also. Its rival ANZ is likely to move as well, and analysts believe homeowners should prepare for a rush of rate rises from all major banks. The Australian reports. >>> more
Season's greetings
We wish all our readers happy holidays, good weather, and a properous New Year. Enjoy your break.
Inflation pressures rise
Australian inflation will rocket to 4% by March, making further rate hikes here a near certainty in the new year. The Australian reports. >>> more
China raises rates - again
The PBoC has raised interest rates for the first time since the government announced a shift in monetary policy from "prudent" to "tightening", but the 6th time in 2007 It is doubtful that the latest tightening moves will create any serious dent on rising inflation or heated investment growth. Their government's reliance on non-market policy tools such as administrative controls on bank lending could generate additional distortions in the economy down the road. >>> more
Prompt corrective action
The European Central Bank is keen these days to spew cash into troubled markets. On Tuesday December 18th it accepted bids from 390 banks for close to €350 billion in short-term money, at below-market rates (between 4.21% and 4.45%). Is this is a $500 billion Christmas present, or a justifiable measure to avert an unseasonal crisis? The Economist investigates. >>> more
Credit dries up as banks price in fear
The second wave of the US sub-prime crisis yesterday caused a logjam in Australia's very short-term money market, as seasonal demand for cash out of the US and the liquidity squeeze triggered a surge in Australian rates. >>> more
Why the credit squeeze is a turning point for the world
"These are historic moments for the world economy. I felt the same during the emerging market financial crises of 1997 and 1998 and the bubble in technology stocks that burst in 2000. This “credit crunch” may, I believe, be an equally important turning point for financial markets and the world economy. Why do I believe this? Let me count the ways." Martin Wolf of the Financial Times reports. >>> more
Central banks work together to ease credit crunch
The US Federal Reserve, European Central Bank and three other central banks moved in concert to alleviate the credit squeeze threatening global growth, in the biggest act of international economic cooperation since the Sept. 11 terrorist attacks. The Fed said it will make up to US$24 billion available to the ECB and Swiss National Bank to increase the supply of dollars in Europe. The Fed also plans four auctions, including two this month that will add as much as US$40 billion, to increase cash in the US economy. >>> more
Lending dries up as China slams brakes on banks
China's annual inflation rate has accelerated to 6.9%, the quickest pace in 11 years, as the Government takes extreme steps to choke off new lending to private business in order to bring prices under control. New lending for November was constricted to less than half of last year's figure. "It effectively means that banking activity has ground to a halt," said one analyst in a Sydney Morning Herald report. >>> more
RBA leaves rates unchanged
The cebtral bank remains concerned about the outlook for inflation. But given the heightened uncertainty about the international outlook and the local trends in wholesale borrowing costs, both of which could have a bearing on inflation over the medium term, it judged that the current stance of monetary policy should be maintained for the time being. >>> more
Rudd stays hands-off on interest rates
Labor is committed to promoting competition in the market but has warned banks to remember the plight of their customers when setting interest rates. >>> more
Reverse mortgages 'should be banned'
NA leading expert on debt has called for reverse mortgages to be banned, claiming they are a big risk to the banking system. Reverse mortgages differ from conventional loans because the borrower initially makes no repayments. Instead the principal and the compounding interest are recovered when they die or house is sold. The total loan amount grows over time. With reverse mortgages the lenders are building in an expectation of continued asset price inflation for the next 15 to 25 years. >>> more
US$40b extra to ease crunch by ECB
In another indication that the credit crisis is not over, the European Central Bank is to supply the money markets with an extra €30 billion in one-week funds. >>> more
US$8b extra to ease crunch on Wall St
Central bankers are becoming nervous that a renewed credit crunch could destabilise financial markets around the end of next month, and the US Federal Reserve has pumped an additional US$8 billion into the market to help ease the mounting pressure. >>> more
NAB may hold RAMS short-term debt
National Australia Bank, the nation's largest, said it may have to hold short-term debt of Rams Home Loans Group on its own balance sheet if the mortgage company fails to secure refinancing. >>> more
Heat on RBA to be more open
The decision by the US Federal Reserve to increase the scope and regularity of its official forecasts could pressure the Reserve Bank of Australia to ramp up its transparency. Analysis of central banks by JP Morgan earlier this year found our Reserve Bank to have the worst communication levels in the world. >>> more
RBA raises rates mid-election
"During 2007, the pace of growth of demand and output has also increased. There are few signs of that strength diminishing as yet, and reports of high capacity usage and shortages of suitable labour persist. Growth in labour costs has been contained so far, and high levels of investment are adding to productive capacity in some sectors. The rise in the exchange rate will help to contain pressure on prices. But growth in aggregate demand will, nonetheless, need to moderate if inflation is to be kept to 2‑3 per cent in the medium term." >>> more
Stay or go?
Comments by a finance industry executive have sparked a furious debate in the industry about whether home loan borrowers would be better off playing safe and switching to a major bank to protect themselves against the fallout from the global credit crunch. >>> more
Finance firms' bad debts soaring
Finance companies felt the cold wind of consumer repayment problems last year, with a 32% jump in their bad and doubtful debt expenses for 2006-07 - a four-year high. >>> more
Cash rate heading for 7%
The inflation outcome on October 24 is likely to be the catalyst for the first rate increase in either November or December (we marginally favour December given the Bank may wait a month for more information on credit and global issues). If we are wrong with our inflation forecast on October 24 and the core measure comes in at, say, 0.7% we will not be changing our 7% forecast for the RBA cash rate. We will push out the timing of the move to 6.75% and look for the 7% target in the second quarter of 2008. >>> more
Westpac picks up RAMS network
Distressed Sydney-based mortgage lender RAMS, who have been caught out big-time in the international credit crunch, have had to sell their 92 branch network to Westpac at fire-sale prices, and are now constrained to managing their legacy book of about $15 billion with no prospect for growth, and no certainty future funding will be available. >>> more
UBS to write off billions amid credit woes
Hopes that the worst of the credit crunch is over have taken a battering. UBS, a Swiss investment bank, announced that it had sustained a third-quarter loss and Citigroup, an American bank, warned that its profits for the quarter would plummet by 60% compared with the same period of 2006. Their travails took the gloss off earlier results from a number of Wall Street banks, which had seemed to indicate that the impact of the subprime-mortgage meltdown on the investment-banking sector was less severe than first feared. >>> more
IMF points finger at Australia
In its semi-annual report on global financial markets, the Global Financial Stability Report, the IMF pointed a finger at the Australia’s mortgage market as being a further potential source of risk in the financial system. On page 21 of the first chapter, the report says “The rapid deterioration in the US nonprime mortgage sector has also led to concerns about dislocations in non-US mortgage markets, especially in the UK nonconforming mortgage sector and, to a lesser extent, the Australian sub-prime sector." >>> more
Housing crisis grows
Brickworks, the country's largest brick maker, has predicted housing starts will fall this business year as higher interest rates dent demand, even in booming Western Australia. Residential starts will shrink by 3000 to 148,000 in 2007-08, with NSW set to enter its most prolonged housing construction downturn since the Great Depression. >>> more
Global markets still in turmoil
The Reserve Bank of Australia says it is too early to determine if recent global financial turmoil has come to an end. Iin its latest financial stability review, it said that while conditions in global markets remained tight, there had been a positive decline in inter-bank spreads and some easing in funding conditions. >>> more
Rates rise still a possibility
Don't jump to the conclusion that the official interest rate is on hold for the foreseeable future. The probability of a rate rise in early November isn't high at this stage, but it can't be ruled out. >>> more
Reserve Bank wrestling to control rates
The Reserve Bank is battling to regain control of interest rates by taking unprecedented steps to increase liquidity in money markets. >>> more
Bank rates surge despite RBA intervention
Australia's central bank provided the banking system with more money than its estimated need, but was unable to restrain a surge in bank bill rates as credit dried up. >>> more
RBA attempts to support currency
Australia's central bank bought the nation's currency for the first time in six years to stem the steepest drop since it was allowed to trade freely in 1983. >>> more
Fed cuts discount rate, acknowledging need for action
The Federal Reserve lowered the interest rate it charges banks and acknowledged for the first time that an extraordinary policy shift is needed to contain the subprime-mortgage collapse that began roiling the world's financial markets two months ago. >>> more
RBA worries about inflation, raises rates
"Domestic economic data in recent months have signalled a pick-up in the pace of growth in demand and activity. Capacity utilisation is high after a lengthy period of expansion, and unemployment over recent months has continued to decline. Business and household confidence are strong. The demand for finance has strengthened, even apart from the temporary surge in June, particularly in the business sector. These conditions have been accompanied recently by higher-than-expected underlying inflation". >>> more
Currency profits
Speculating on the AU$ is often said to be profitable; however finding the evidence is hard. But Warren Buffett of Berkshire Hathaway, one of the worlds richest investors, has detailed what his company has made on many currencies, including the AU$, in his lastest letter to shareholders. In four years, he made US$247 million in profits on the Aussie. See page 16 of his 2006 shareholder letter. >>> more (.pdf 482 kb)
How the housing crisis hurts everyone
The crisis affects different groups differently. It is not society's problem if people have difficulty buying property in ritzy neighbourhoods. But it is society's problem if nurses can't afford to live near hospitals and people on average incomes can't afford to live in average suburbs. >>> more
The $A is undervalued
The Economist's Big Mac Index provides a rough guide to how far currencies are from fair value. The index is based on the theory of purchasing-power parity (PPP), which says that exchange rates should equalise the price of a basket of goods—in this case, a Big Mac hamburger. And, the A$ is undervalued against the US$ in ths survey. >>> more
Spread the risk
There are three simple rules to remember when it comes to investments. Don't put all your eggs in one basket, if it's too good to be true it usually is, and the higher the return, the higher the risk. All investments carry risk – even those considered relatively secure – so it pays to consider them carefully before parting with your money. >>> more
Housing affordability hits record low
Housing affordability has fallen to its lowest level ever recorded by a key industry measure of the market, set up 23 years ago. >>> more
What drives RBA monetary policy
RBA policy decisions can be broken down into a simple reaction function. Inflation is the most important variable in explaining RBA policy decisions but the real variables cannot be ignored. Given the current strength of the real economy, Westpac's RBA model is suggesting it would only take a modest re-acceleration in inflation to prompt the RBA to raise rates in 2008. >>> more
Conditions are not yet ripe for a strong resurgence in investor housing
A sharp pick-up in investor finance commitments in recent months probably has more to do with superannuation-related shifts than a strong revival
in investor interest. Conditions are improving but a strong upturn still looks to be some way off for most investor housing markets. >>> more
Shared equity mortgages
The deal is that the borrower can borrow 20% of the property's purchase price interest-free and in return the lender gets 40% of any capital gain made when the property is sold or the borrower finalises the loan. The EFM is taken in conjunction with a standard mortgage and while borrowers pay interest on this loan, there is no interest or monthly repayments on the EFM part of the loan. >>> more
How much longer can the carry trades last?
The frightening events on February 27th showed that even though interest rate differentials are fundamental to the carry trade, they are far from enough for the trade to succeed. What really makes the difference between good and bad carry trades are interest rate expectations. The new rules of the carry trade require that you find currencies with both high interest rates and positive interest rate expectations. >>> more
IMF warns our interest rates may need to rise
The International Monetary Fund has warned Australia may need even higher interest rates if the central bank fails to get inflation under control. >>> more (.pdf 871 kb See Chapter 2, page 60)
US Fed watch - where is it going with rates?
The Federal Reserve remains focused on inflation, so don't expect a rate cut anytime soon. However, given the recent weakness in US economic data, a rate hike doesn't appear to be in the cards either. Indeed, with growth falling short of the Fed's outlook, and inflation remaining uncomfortably high, it appears the central bank may be on hold for a long while. >>> more
Low-doc loans to get RBA roasting
For the past few years the Reserve Bank of Australia has been fretting about the erosion of credit quality, led by lenders attempting to increase business despite weakening demand for loans. The proliferation of lower-quality loans has the potential to turn an economic slowdown into something decidedly uglier, just as the flood of dodgy commercial loans in the late 1980s exacerbated the early 1990s recession. >>> more
Equity trade-off for bigger home loans
A new mortgage has been unveiled that can boost a home buyer's spending power by a quarter, but the lender keeps 40% of any capital gain. The product would target first-time buyers lacking the full finances for entry into the home-owner market. >>> more
Defaults hit 10-year high
Rising interest rates and record debt levels are taking their toll on the nation's lenders with mortgage payments more than 30 days in arrears hitting a 10-year high in December. >>> more
Bank fees: are they against the law?
Public pressure is mounting to challenge the financial giants over the fines they impose on us. Our interest was piqued by a move from the British Office of Fair Trading
claiming that companies can't profit from penalty fees, they can only recoup the
costs of the action. >>> more
It's tough for the BofJ to be independent
The Bank of Japan has been anxious to wean the country off its addiction to cheap money. It does not want to repeat it’s mistakes of the 1980s, when its easy monetary policy created a bubble economy. The bubble’s collapse brought the country’s banking system to its knees, and condemned Japan to 15 years of deflation. >>> more
CBA says next move is down
Commonwealth Bank chief executive Ralph Norris says the interest rate cycle has probably peaked and that he expects the next move in rates will be down. Norris said the general view in the market at the moment was that inflationary pressures had moderated. >>> more
Asset price bubbles the big bugbear
The key question is whether booms and busts in asset markets are more likely to occur in the future, and whether central banks will be able to successfully handle them. On asset price booms and busts nobody knows, "but there is no reason to believe they will become less frequent or smaller". >>> more
Its a low, low, low rate world out there
Internationally, money is cheap. And some experts say it could stay that way for years. That's creating opportunity—and brand new risks. >>> more
The spineless Bank of Japan
The tendency of the rest of the world to ignore Japan may be understandable, given the country's inward-looking attitudes and appearance of stagnation. But Japan has become, if only by sins of omission, a malign influence on the global economy. Finance ministers of the G7 industrial countries would do well to focus on those sins, the least-recognised cause of the bubbles and imbalances in the global economy and financial markets. >>> more
Why some countries grow fast
Probably the most important feature of sustained high growth is that it involves leveraging the demand and resources of the global economy. There are no known exceptions to this principle. All cases of sustained high growth prominently include a growing export sector as a growth driver and a rising fraction of GDP associated with exports and imports. >>> more
Low-doc loans hit $38bn, rising fast
The value of low documentation loans in Australia is tipped to all but double in the next five years to $58 billion, despite concerns about the high-risk nature of the loans. >>> more
A beginner's guide to building wealth
It's never too early to start saving and never too late to stop frittering your cash away. >>> more
Output is more or less a puzzle
Employment rose by 3% last year, but output only increased by about 2.5%. More people, it would seem, are producing less." >>> more
Shock as UK rates rise to 5.25%
The Bank of England has raised UK interest rates to 5.25% from 5%. "What this perhaps tells us is that we have a nasty inflation number coming next week and they wanted to act pre-emptively." >>> more
Is the Fed impotent? - the 5% solution
PIMCO is picking a falling US Fed Funds rate, and renewed vigour for the US bond market as a consequence. Here's why. >>> more
Economics discovers its feelings
Doing well is not enough: we also want to do better than our peers. This status anxiety runs deep in our nature. >>> more
Predictions for 2007
Global Insight, who were impressively accurate with their 2005 predictions for 2006, again look at what they expect 2007 to be like. They expect the US Fed to let US official interest rates fall back to 4.75% while the ECB continues to raise rates one more time to 3.75%. They also expect more increases from Japan, settling there at 1.00%. >>> more
Happy New Year
We wish all our readers a happy and propserous New Year and we trust you enjoy your well-earned holiday break.
Strong demand for credit will hold up interest rates
Higher interest rates have so far made little impression on consumers with the annual pace of credit demand remaining at a 3½ year high in November. Recent data suggests the central bank will be in no haste to cut interest rates soon, even if ballooning inflation pressures start to subside in the new year. >>> more
Households tipped to shrug off rate rises
Households are enjoying better financial health and should shrug off the effects of higher interest rates. Treasury also expects house prices to start rising, making consumers feel wealthier and more prepared to spend. >>> more
Most are suffering housing stress
Most of Australia is officially in "housing stress", with more than a third of family income required to service the average home loan. The Real Estate Institute of Australia said affordability was now at its lowest point in 16 years, with families in NSW, Queensland and Tasmania hardest hit. >>> more
Rates, drought hit economic growth
In another sign that interest rate rises and the drought are hurting the economy, Australia's subdued growth has continued with real GDP rising by a seasonally adjusted 0.3% in the September quarter. >>> more
Online accounts boom as rates rise
The recent spate of interest rate rises has caused a further surge in the popularity of online deposit accounts offering high interest rates. >>> more
Economy will be hammered by drought next year
Australia's worst drought in a century will damp the economy's expansion in 2007 as it reduces farm production and restrains exports, the OECD said. >>> more
Borrowers burnt in the mortgage melee
On the outskirts of Sydney and Melbourne, things are getting ugly. "For Sale" signs abound. What they don't tell you is who's selling. The banks, you see, are telling the agents not to disclose the vendor - to not say a word. The bulk of these sales are mortgagee-in-possession jobs. >>> more
This looks like the last
Few are willing to predict there would be another rate rise in the next six months and some suggested the next rate movement would be down. UBS economists said there were signs of slower lending and credit growth and a milder tone in RBA comments. >>> more
RBA cash rate rises to 6.25%
"Domestic demand has been expanding at a relatively strong pace against a background of limited spare capacity. Labour market conditions have remained tight and businesses are reporting high levels of capacity usage. The Board judged this to be an environment in which the risks of inflation exceeding 2-3% over the medium term remained significant". >>> more
Robust US jobs report takes rate cuts off the agenda
The October US employment report showed job creation of 92,000, less than expected, but previous months were revised up sharply and the unemployment rate hit a new low for this cycle of 4.4%. The robust report provides an antidote to recent downbeat economic indicators, and does not portray an economy tumbling into recession. >>> more
IMF thinks RBA should raise rates again
They noted that further monetary tightening may eventually be needed if domestic demand growth or other factors lead to an increase in underlying inflation pressure. >>> more
Rising prices to hit rates
Business is suffering higher costs and is increasingly passing them on to retailers, strengthening the case for another interest rate increase next month. >>> more
Stewart sees Four Pillars tumbling
With a media industry already pregnant with deals ahead of next year's relaxation of ownership laws, one of the nation's big bank chiefs has forecast the inevitable demise of the Four Pillars policy restricting big-bank mergers. >>> more
Asset-rich flock to reverse mortgages
The number of asset-rich but cash-poor retirees borrowing against the value of their home to finance spending has doubled over the past 18 months. >>> more
Case for brake on rate rise mounts
Two interest rate rises have stung the services sector, and businesses expect weaker activity in coming months. >>> more
Never-never home loans
The Reserve Bank is alarmed at the rise of interest-only home loans, warning of negative equity for borrowers who fail to make inroads into the principal of their loans while house prices fall. >>> more
Risky ratios drive lending
Banks are fuelling property price rises by loosening credit standards so people can borrow larger amounts for expensive houses, in defiance of warnings by the Treasurer to maintain strict criteria. >>> more
Allco Finance fiddles the numbers and makes them fit
Allco Finance Group has been caught out juggling numbers in its financial accounts without informing shareholders, in a move that could raise alarm bells with investors and regulators. >>> more
How to maximise returns on cash
Higher interest rates mean higher deposit rates, which translates to cash being a more attractive investment. >>> more
How rate rises beat inflation
How on earth does the Reserve Bank imagine putting up interest rates will reduce inflation? Can't it see that higher interest payments actually feed inflation? Has that thought ever occurred to you? Have you heard other people arguing it? Hearing people talk this way is a sure sign interest rates are starting to bite. >>> more
Fed was split over US rate freeze
The Federal Reserve's decision to halt interest rate rises earlier this month was not unanimous it has emerged, with hints that hikes could resume. >>> more
Rates likely to rise again, says Macfarlane
Appearing for the last time before a parliamentary committee, Mr Macfarlane said the assessment of the market that there would be a further official rates rise “is about right". >>> more
RBA raises cash rate target to 6%
"Overall the Board's assessment, based on the gradual increase in underlying inflation this year, and the wider background of above-average global growth and strong domestic demand, was that underlying inflation in the period ahead was likely to exceed previous forecasts". >>> more
OECD rates Australia
Australia has been riding the global boom in commodities, benefiting increasingly from its proximity to Asia. But Australia “has also made its own luck” through a series of structural reforms and the introduction of a robust macroeconomic framework which have bolstered resilience. This is illustrated by its macroeconomic stability in the face of a string of recent shocks, in stark contrast to the macroeconomic chaos which followed the commodities boom of the early 1970s. A further test of this new resilience will occur at some point when the terms of trade decline – this underlines the need to continue prudent macroeconomic policies. >>> more
Petrol prices driving case for rate rise
The news looks bad for people with a home loan. Economists say it will take a statistical miracle to stop the Reserve Bank lifting interest rates next month. Even if one occurred, and there is one last hurdle this week before decision day, chances are the central bank will ignore it. >>> more
Growth in China romps to strongest rate in over a decade
Even for an economy doused in superlatives, China’s second-quarter growth still managed to exceed all expectations. >>> more< | 
