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Reserve Bank of Australia hikes OCR 25 bps to 3.5% (Update 1)
November 3rd, 2009The Reserve Bank of Australia has hiked its Official Cash Rate by 25 basis points (bps) to 3.5%. This was in line with market expectations and follows a 25 bps hike last month. (Update 1 includes statement from RBA Governor.)
The RBA’s rate is now a full 1% above the Reserve Bank of New Zealand’s Official Cash Rate which is at a record low of 2.5%.
RBA Governor Glenn Stevens said economic conditions in Australia have been stronger than expected with measures of confidence having recovered. The growth outlook for the Australian economy for the year to June 2010 was also revised upward to 1.5% by the Australian Treasury yesterday from a contraction of 0.5%.
Here is the statement from Stevens that accompanied the rate decision:
The global economy has resumed growth. With economic policy settings likely to remain expansionary for some time, the recovery is likely to continue during 2010 and forecasts have been revised higher. The expansion is generally expected to be modest in the major countries, due to the continuing legacy of the financial crisis. Prospects for Australia’s Asian trading partners appear to be noticeably better. Growth in China has been very strong, which is having a significant impact on other economies in the region and on commodity markets. For Australia’s trading partner group, growth in 2010 is likely to be close to trend.
Sentiment in global financial markets is much better than earlier in the year. Nonetheless, the state of balance sheets in some major countries remains a potential constraint on their expansion.
Economic conditions in Australia have been stronger than expected and measures of confidence have recovered. Some spending has probably been brought forward by the various policy initiatives. With those effects now diminishing, these areas of demand may soften somewhat. Some types of capital spending are likely to be held back for a while by financing constraints, but it now appears that private investment will not be as weak as earlier expected. Medium-term prospects for investment appear, moreover, to be strengthening. Higher dwelling activity and public infrastructure spending are also starting to provide more support to spending. There have been some early signs of an improvement in labour market conditions. The rate of unemployment is now likely to peak at a considerably lower level than earlier expected.
Inflation has been declining for the past year. In underlying terms, inflation should continue to moderate in the near term, but now will probably not fall as far as earlier thought. Headline CPI inflation on a year-ended basis has been unusually low because of temporary factors, and will probably rise somewhat over the coming year. Both CPI and underlying inflation are expected to be consistent with the target in 2010.
Housing credit growth has been solid and dwelling prices have risen appreciably this year. Business borrowing has been declining as companies have sought to reduce leverage in an environment of tighter lending standards. For many business borrowers, increases in risk margins are still coming through. The decline in credit has been concentrated among large firms, which have had good access to equity capital and, more recently, to debt markets. Share markets have recovered significant ground.
The Board noted that the rise in the exchange rate is likely to constrain output in the tradeables sector and dampen price pressures. Nonetheless, growth is likely to be close to trend over the year ahead and inflation close to target. With the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. The adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.
Tags: Interest Rates, OCR, RBA, RBNZ, Reserve Bank of Australia, Reserve Bank of New Zealand
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November 3rd, 2009 at 4:46 pm
Above this article is displayed an advertisement by Rabobank offering 3.6% on call. Government guaranteed, from a triple A rated bank. Or you can get 8% or more from SCF until October 2010, also government guaranteed.
At 2.5% the OCR is an artefact, and close to irrelevant.
November 3rd, 2009 at 4:53 pm
A full 1% above our OCR:
- maybe it’s a consequence of the RBNZ’s OCR being a full 100-200bps above the RBA’s mid 2004 til mid 2008! Or the fact our OCR peaked 100bps above theirs!
Certainly no 1 to 1 correlation between the two central bank’s interest rate movements.
Alan can hold off.
November 3rd, 2009 at 5:02 pm
No wonder NZs dollar is dropping, better interest rates in Oz for depositers to save in.
November 3rd, 2009 at 5:13 pm
Not much movement for both NZ$ and AU$ as at current eventhough RBA has raised its rates. It seems that the correlation between the 2 currencies is there, no difference today though.
November 3rd, 2009 at 6:13 pm
Perplexing then that their mortgage rates (particularly the floating ones supposedly influenced by the OCR) are still cheaper than ours…….
November 3rd, 2009 at 6:51 pm
Murray the Aussie banks have always been gouging the Kiwis mate!
November 3rd, 2009 at 6:58 pm
Agree Murray, how exactly does that work that aust floating rates are cheaper than ours? Its a joke and means that the relationship between the OCR and floating rates is a crock of shite and the rates charged by the banks are largely artificially created by them largely irrespective of the OCR. Care to refute that Alan or Bernard?
November 3rd, 2009 at 8:52 pm
You would have to research what the banks in Aussie are paying for on call and term deposit funds before making the above assumptions. They could well be lower than ours.
November 3rd, 2009 at 9:10 pm
It’s nothing short of economic Darwinism: The strong always feed off those lower on the food chain. Unfortunately, we’re at the bottom. Look for even more Kiwis to make the trip across the Tasman. There are jobs there, and a central bank with enough autonomy left to do what’s best for their people. Surely, Bollard must respond with at least a quarter point hike?
November 4th, 2009 at 7:13 am
@Doug: No and no….He doesnt have to respond with a hike at all, what [one of] the primary job of the RB and OCR?….hint there is little inflation…and there must not be no inflation…so Bollard is caught between a rock and a hard place…
This isnt about autonomy, its about imbalances that the NZ Govn has to fix and not the RB…The RB can treat the symptoms with a sledge hammer and might make things worse (deflation) because its such a brutal tool…..the illness has to be fixed with Govn budget and legislation….fix the tax loopholes and fix the financial industry by making it transparent and open….then ppl will put money into businesses…
As for Kiwis tripping across the Tasman, take a look at who are doing so….from the little ive seen its the un or semi-skilled mostly, ppl we can easily afford to lose…if that is the case the more the merrier to my mind. This is because of several reasons, 1) We have lots of semi-skilled and few jobs, they go over and earn and also 2) pay the compulsory pension….so eventually if they come back they are liable to be better off financially and have some/more private pension which they probably wouldnt have had here…
The others that move are indeed profesionals but the ones I know have moved for the overseas and bigger experiences brought about by bigger and in the case of UK etc far bigger economies that simply dont exist here. A reverese example would be me, Im used to big projects in the UK, large sums of $ and complex. I came here for the lifestyle and health, the jobs Ive had though reflect how small NZ is….but the money is OK and the quality of life great, my kids are having a “kiwi kid” upbringing and seem to be thriving. So dont assume because the money is different that the money is the “simple” reason….it isnt IMHO. And yes they could go overseas, in fact may well, but to me that’s life….a parents job is to prepare the child for the world at large to my mind…so going out into it is expected.
regards
November 4th, 2009 at 7:15 am
@CBS68 and Mike M: I think Bernard has commented elsewhere on this….
regards
November 4th, 2009 at 8:03 am
Scream and yell all you like, it matter not….the cost of credit will rise. Fixed rates are set to keep climbing a wall. Bollard is playing pork the market with cheap loot but in the end all he achieves is inflation and so up goes the ocr. He does not achieve a growth in export earnings because the cheap loot is flowing into the same dumb property game. Until Bollard rips the bubble apart, he will never escape the stupid game. He is the tail on the dog. The game is set by the banks and supported by a stupid govt that is more closely woven into the banking old boys club than we can imagine. It is not a matter of what is good for NZ…everything is being geared toward what is bloody great for the banks. Keep your eye on all the bank directorships in the years ahead and who gets to sit their bum on a seat made of other peoples money. They will, each and every one of them, be knighted for services to the country (read services to banking)
November 5th, 2009 at 6:42 am
@Wally: IMHO, this isnt Bollard, this is successive Govns policy or lack thereof. I dont see them (The Govns) as stupid, more like self-centred or pandering to the internal lobbies to not fix issues due to self-interest(s)…