jacob-greber

Greenspan Says U.S. May Soon Reach Borrowing Limit

by on June 18, 2010

By Jacob Greber June 18 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said the U.S. may soon face higher borrowing costs on its swelling debt and called for a “tectonic shift” in fiscal policy to contain borrowing. “Perceptions of a large U.S. borrowing capacity are misleading,” and current long-term bond yields are masking America’s debt challenge, Greenspan wrote in an opinion piece posted on the Wall Street Journal’s website. “Long-term rate increases can emerge with unexpected suddenness,” such as the 4 percentage point surge over four months in 1979-80, he said. Greenspan rebutted “misplaced” concern that reducing the deficit would put the economic recovery in danger, entering a debate among global policy makers about how quickly to exit from stimulus measures adopted during the financial crisis. U.S. Treasury Secretary Timothy F. Geithner said this month that while fiscal tightening is needed over the “medium term,” governments must reinforce the recovery in private demand. “The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy,” said Greenspan, 84, who served at the Fed’s helm from 1987 to 2006. “Incremental change will not be adequate.” Rein in Debt Pressure on capital markets would also be eased if the U.S. government “contained” the sale of Treasuries, he wrote. “The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.” Yields on U.S. Treasuries have benefitted from safe-haven demand in recent months because of the European debt crisis, a circumstance that may not last, said Greenspan, who now consults for clients including Pacific Investment Management Co., which has the world’s biggest bond fund. Benchmark 10-year Treasury notes yielded 3.20 percent as of 12:11 p.m. in Tokyo today, down from the year’s high of 4.01 percent in April and compared with as high as 5.32 percent in June 2007, before the crisis began. Yields have remained low “despite the surge in federal debt to the public during the past 18 months to $8.6 trillion from $5.5 trillion,” Greenspan said. The swing in demand toward American government debt and away from euro-denominated bonds is “temporary,” he said. “Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis,” Greenspan said. “Our policy focus must therefore err significantly on the side of restraint.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Greenspan Says U.S. May Soon Reach Borrowing Limit

Meirelles Says Brazil Central Bank in Tightening Mood on Inflation Threat

by on June 3, 2010

By Jacob Greber and Zeb Eckert June 4 (Bloomberg) — Brazil central bank President Henrique Meirelles said the nation’s monetary policy is already in a “tightening mood” as authorities work to keep inflation on target. “We are already in a tightening mood,” Meirelles said today in a Bloomberg Television interview from Busan, South Korea. “We have exited from all the liquidity measures which were taken” during the financial crisis, and “we are taking the necessary steps to make sure the Brazilian economy is all balanced,” he said. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Meirelles Says Brazil Central Bank in Tightening Mood on Inflation Threat

RBA Says European Turmoil May Trigger `Sharp’ Slowdown in Global Economy

May 6, 2010

By Jacob Greber May 7 (Bloomberg) — Australia’s strengthening economy, forecast to accelerate above its average growth rate next year and in 2012, could be buffeted by global fallout from Europe’s debt turmoil, the central bank said. “The fiscal problems in Europe could intensify, prompting a retreat from risk-taking by investors and a sharp slowing in the world economy,” the Reserve Bank of Australia said in Sydney today. “If this were to occur abruptly it could prompt another period of global economic weakness and falls in commodity prices.” Global stock markets, the euro and bond prices have tumbled this week as investors seek safer assets amid concern Greece’s sovereign credit crisis will spread to other European countries and undermine their economic recoveries. While Australia’s central bank boosted forecasts for domestic growth and inflation today, it also said investors are currently focused on “downside” risks. If that uncertainty deepens, “Australia’s good fundamentals would help, but the experience of late 2008 suggests that the willingness to invest abroad declines in such circumstances,” the bank said in its quarterly Statement on Monetary Policy. Still, Australia’s economy shows signs of accelerating, as companies such as BHP Billiton Ltd. and Chevron Corp. stoke a record mining investment boom to meet Chinese demand for iron ore, coal and energy. Above Average Gross domestic product growth will accelerate from 3.25 percent this year to 3.75 percent in 2011 and 4 percent in 2012, a pace that is higher than the economy’s “longer-run average rate,” today’s statement said. Three months ago, the central bank predicted GDP would increase 3.5 percent in 2011. Its forecast for this year was unchanged. Reserve Bank of Australia Governor Glenn Stevens this week increased his benchmark overnight cash rate target by a quarter percentage point to 4.5 percent, the sixth increase in seven months, saying borrowing costs are now back at their “average” levels. The comment prompted investors to increase bets that policy makers will keep borrowing costs unchanged in coming months. Stevens said last month that his adjustments, which are the biggest increases in interest rates by any Group of 20 central bank, are appropriate given the economy is expanding at or close to trend. Mining Boom Higher mining investment “will support growth in the Australian economy at a time when the boost from the earlier expansionary settings is diminishing,” the bank said today. “It will also expand the supply capacity of the economy, with growth in resource exports likely to pick up further over coming years.” Underlying inflation, which has slowed to around 3 percent over the year to the March quarter from a peak of just over 4.5 percent in the September quarter of 2008, will cool to 2.75 percent this year before accelerating back to the top of the bank’s target range of 2 percent to 3 percent in 2012, today’s forecast said. The bank’s higher growth and inflation forecasts are based on the assumption that policy makers will boost the cash rate “broadly” in line with market expectations. Traders predict Stevens will keep borrowing costs unchanged until October, when the overnight cash rate target will be increased by a quarter point to 4.75 percent, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange late yesterday. Resource Reallocation Today’s statement also said economic growth outside Australia’s mining sector will be slower “reflecting the reallocation of resources within the economy.” “This is partly due to the high level of the real exchange rate, which is reducing the international competitiveness of import-competing and other exporting sectors such as manufacturing and tourism,” the bank said. Australia’s currency has climbed 18 percent in the last 12 months. A further international risk to Australia’s expansion is the danger that rising inflation in Asia “prompts a significant tightening of financial policies in the region, including China” where construction growth would slow, the RBA said today. “This would lead to a reduction in the demand for steel-related and energy commodities and a reassessment of prospects for the resources sector in Australia,” the bank said. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Signals Higher Bar for Interest-Rate Rises After Leading World

May 4, 2010

By Jacob Greber and Daniel Petrie May 5 (Bloomberg) — The Reserve Bank of Australia signaled a higher bar for interest-rate increases after becoming the world’s first major central bank to withdraw “ emergency ” stimulus used during the global financial crisis. Governor Glenn Stevens raised the benchmark rate for a sixth time in seven meetings, to 4.5 percent, and said lending costs are back to “average” for most borrowers. The bank will hold off on a boost next month, according to all 24 economists surveyed by Bloomberg News after yesterday’s decision. Stevens’s job is now to decide whether surging investment in mines, along with a 20 percent jump in house prices and rising commodity costs, will push inflation above the bank’s 2 percent to 3 percent target range without further action. One keen observer: Prime Minister Kevin Rudd , who faces an election within a year and may be vulnerable should rates start to erode households’ purchasing power. “There is now a far stronger case for the Reserve Bank to pause, especially as it now believes borrowing costs are back to ‘normal’,” said Craig James , a senior economist at Commonwealth Bank of Australia in Sydney. “Until now, consumers have remained confident, but the rate hikes have made them reluctant to spend.” The central bank’s next steps will be “to move monetary policy to restrictive settings, designed to slow the economy down,” James said. ‘Significant Adjustment’ The Australian dollar, which has climbed 26 percent in the past 12 months, tumbled against the U.S. dollar by the most in a week after Stevens said yesterday that the bank’s increase in borrowing costs from a record-low 3 percent in early October was a “significant adjustment.” The local currency traded at 92.07 U.S. cents at 5:21 p.m. in Sydney yesterday from 92.45 before the decision was announced. Stevens, unlike counterparts in the U.S. and Europe, is under pressure to extend a world-leading round of rate increases as Australia’s economic expansion strengthens. Federal Reserve officials restated their intention on April 28 to keep the benchmark interest rate near zero for an “extended period.” The head of the European Central Bank, Jean-Claude Trichet , presiding over a record-low rate of 1 percent, this week diluted rules for the second time in a month to guarantee the bank will keep taking Greek government bonds as collateral for loans. Stevens said yesterday that inflation, which peaked at 5 percent in 2008, may not slow as much as earlier forecast and “now appears likely to be in the upper half of the target zone over the coming year.” New Forecasts By contrast, the governor predicted three months ago that inflation “would be in line” with its target range. The central bank will publish its latest forecasts for inflation and economic growth on May 7. “The RBA’s growth and inflation forecasts are clearly in the process of being changed,” said Stephen Roberts , a senior economist at Nomura Australia Ltd. in Sydney. Stevens “has only a relatively limited window to pause at average interest rates” and will resume increasing borrowing costs in the fourth quarter, taking the benchmark to 5.25 percent in early 2011, Roberts said. Continued rate increases may pose a danger for Rudd’s Labor Party, which has seen voter support slump to the lowest level since before taking power in 2007 and faces an election within the next year. Australian leaders are vulnerable to rate increases as more than two-thirds of the population own homes, compared with less than 50 percent in some European nations. Variable Rates More than 90 percent of mortgages taken out last year, when the benchmark rate was slashed and Rudd’s government temporarily increased grants to first-time buyers of new dwellings to as much as A$21,000 ($19,300), were on variable rates. The central bank has boosted the benchmark rate by 150 basis points since October, adding about A$3,600 a year to repayments on an average A$300,000 mortgage. Treasurer Wayne Swan said yesterday the central bank’s decision, while tough for families, means “rates are returning to more normal levels.” Australia’s four largest banks, Commonwealth Bank of Australia , National Australia Bank Ltd., Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd., yesterday boosted the rates on their variable home loans by 25 basis points to between 7.51 percent and 7.24 percent. Support for Rudd’s government has fallen behind the opposition Liberal-National coalition for the first time since 2006, according to a Newspoll published yesterday by the Australian newspaper. Voter Support The so-called two-party preferred vote for Labor dropped to 49 percent in the survey of 1,200 voters taken last weekend from 54 percent in mid April, and 52.7 percent when Rudd won in November 2007. The coalition’s support rose to 51 percent from 46 percent. The margin of error is plus or minus 3 percent. There are also signs that the bank’s previous moves are prompting consumers to pare spending. A measure of consumer confidence published on April 14 by Westpac Banking Corp. slipped 1 percent last month, and separate reports showed retail sales dropped 1.4 percent in February and home-building approvals slumped 3.3 percent. Woolworths Ltd., Australia’s biggest retailer, cut its annual sales growth forecast on April 30 in the absence of government cash handouts that stoked demand last year. “We don’t need a hyped up central bank goose stepping all over the economy like they did in early 2008,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “If the RBA does ease off a touch now, they may need to engage the odd 50-basis-point move down the track. That’s a small price to pay, though, to be more certain on the economy now.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Raises Key Interest Rate to 4.5% in Sixth Increase Since October

May 4, 2010

By Jacob Greber May 4 (Bloomberg) — Australia’s central bank increased the benchmark interest rate for the sixth time since early October after policy makers raised their outlook for inflation and judged the nation is insulated from Greece-sparked debt woes. Governor Glenn Stevens boosted the overnight cash rate target to 4.5 percent from 4.25 percent, the Reserve Bank of Australia said in a statement in Melbourne today. The decision was predicted by 18 of 24 economists surveyed by Bloomberg News. Australia’s currency fell after Stevens said borrowing costs have returned to “average” levels, ending the monetary stimulus that helped the nation avoid the global recession. Stevens has led Group of 20 policy makers in boosting borrowing costs by 150 basis points in seven months as record mining investment stokes demand for workers and fuels inflation.     “Don’t expect this pace of monetary policy tightening to continue in the months ahead,” said Ben Dinte , an economist at Macquarie Group Ltd. in Sydney. Now that rates are moving toward average levels, policymakers have “some room to keep rates on hold in the next couple of months.” Australia’s dollar fell against the U.S. currency by the most in a week, dropping to 92.15 U.S. cents at 4:02 p.m. in Sydney from 92.45 before the decision was announced. The nation’s benchmark S&P/ASX 200 Index extended declines, slipping 0.9 percent to 4742.80. Target Range Stevens, unlike counterparts in the U.S. and Europe, is under pressure to extend a world-leading round of rate increases as Australia’s economy accelerates, stoking inflation and property prices, which surged more than 20 percent in the 12 months through March. The governor said inflation, which peaked in 2008, may not slow as much as earlier forecast and “now appears likely to be in the upper half” of the central bank’s target range of 2 percent to 3 percent over the coming year. By contrast, Stevens predicted three months ago that inflation “would be in line” with its target range. The central bank will publish its latest forecasts for inflation and economic growth on May 7. Continued rate increases may pose a danger for Prime Minister Kevin Rudd ’s Labor Party, which has seen voter support slump to the lowest level since before taking power in 2007 and faces an election within a year. The government, which presents its annual budget next week, also faces a backlash from mining firms after announcing plans to levy a 40 percent “super tax” on the profits of resources companies. Greek Turmoil Today’s decision also suggests policy makers are less concerned about factors such as Greece’s debt turmoil, which Stevens cited as a reason for keeping rates unchanged in February. The European Central Bank yesterday said it would indefinitely accept Greek debt as collateral regardless of the credit rating, after European ministers and the International Monetary Fund at the weekend agreed on a 110 billion-euro ($145 billion) bailout plan. “To date, there has been very little contagion outside Europe,” Stevens said today. As the risk of a serious economic contraction in Australia has “passed some time ago,” policy makers have been adjusting the cash rate towards levels that “would be consistent with interest rates to borrowers being close to the average experience over the past decade or more,” Stevens said today. The pace of gains in Australia’s consumer price index almost doubled in the first quarter to 0.9 percent from 0.5 percent in the previous three months, a report showed last week. A measure of so-called core inflation, the weighted-median, rose 3.1 percent from a year earlier. Inflation Outlook With Stevens citing “buoyancy” in the country’s housing market and a surge in mining investment, further increases may yet be needed, said economist Su-Lin Ong . “They have done quite a lot in the past six months, but the door is still open” to further moves, said Ong , a senior economist at RBC Capital Markets Ltd. in Sydney, who forecast today’s increase. Just “because they are saying rates are around long-run averages doesn’t rule out moves in the next couple of months.” Forecasts for higher borrowing costs come as Australia’s political parties prepare for an election, due within the next 11 months. Australian leaders are vulnerable to rate increases as more than two-thirds of the population own homes, compared with less than 50 percent in some European nations. First-Home Buyers More than 90 percent of mortgages taken out last year, when the benchmark rate was slashed and Rudd’s government temporarily increased grants to first-time buyers of new dwellings to as much as A$21,000 ($19,500), were on variable rates. The central bank has increased its benchmark rate by 150 basis points since early October, adding about A$3,600 a year to repayments on an average A$300,000 mortgage. Treasurer Wayne Swan said the central bank’s decision, while tough for families, means “rates are returning to more normal levels.” Commonwealth Bank of Australia, the country’s biggest bank, said today it will increase the rate on its variable home loan by 25 basis points to 7.36 percent on May 7. Support for Rudd’s government has fallen behind the opposition Liberal-National coalition for the first time since 2006, according to a Newspoll published today by the Australian newspaper. Voter Support The so-called two-party preferred vote for Labor dropped to 49 percent in the survey of 1,200 voters taken last weekend from 54 percent in mid April, and 52.7 percent when Rudd won in November 2007. The coalition’s support rose to 51 percent from 46 percent. The margin of error is plus or minus 3 percent. “Most people are focused towards the end of the year,” Craig James , a senior economist at Commonwealth Bank of Australia in Sydney. “At some time they’ve got go pause, and there are indications the economy is already starting to slow.” A measure of consumer confidence published on April 14 by Westpac Banking Corp. slipped 1 percent last month, and separate reports showed retail sales dropped 1.4 percent in February and home-building approvals slumped 3.3 percent. Woolworths Ltd., Australia’s biggest retailer, cut its annual sales growth forecast on April 30 in the absence of government cash handouts that stoked demand last year. Still, Stevens is likely to remain among Asia-Pacific policy makers withdrawing monetary stimulus this year. Malaysia and India have boosted borrowing costs, while the New Zealand central bank said last week it expects to begin raising rates “in coming months.” Australia’s economy, which skirted last year’s recession, is being stoked by increased investment in resources projects such as Chevron Corp. ’s Gorgon liquefied-natural-gas project in Western Australia, potentially worsening a shortage of skilled workers that threatens to boost wage growth. “Australia’s terms of trade are rising by more than earlier expected, and this year will probably regain the peak seen in 2008,” Stevens said today. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Reserve Bank Says Australian Mining Boom Prompted `Prudent’ Rate Increase

April 19, 2010

By Jacob Greber April 20 (Bloomberg) — Concern that Australia’s mining boom will stoke inflation was a key reason the central bank raised borrowing costs toward “more normal levels” two weeks ago and signaled further moves in 2010, policy makers said. “On the question of timing, the fact that the prospective rise in the terms of trade was now likely to be noticeably stronger than had been expected was a factor suggesting that it might be prudent not to delay adjustment,” central bank officials said in minutes released today in Sydney of their April 6 meeting. Governor Glenn Stevens has led the world in raising borrowing costs, after boosting the overnight cash rate target this month by a quarter percentage point to 4.25 percent, the fifth move in six meetings. The bank is signaling further increases in borrowing costs as the economy’s expansion accelerates, spurred by this year’s 50 percent jump in the spot price for iron ore from shippers including BHP Billiton Ltd. “Further tightening will be needed over the remainder of the year,” said Ben Dinte , an economist at Macquarie Group Ltd. in Sydney. “A key indicator of the need to tighten beyond this neutral setting in 2011 will be when the RBA starts talking about above-trend growth.” Given the central bank’s forecast that domestic growth will be “around trend” this year, “the level of interest rates in the economy would be expected to be close to average,” the minutes said. ‘Rise Further’ “Since lending rates were still a little below average, members expected that they would probably need to rise further in the period ahead,” they added. The Australian dollar rose to 92.66 U.S. cents at 12:23 p.m. in Sydney from 92.56 cents before the minutes were released. The two-year government bond yield rose 2 basis points to 4.95 percent. A basis point is 0.01 percentage point. Traders are betting there is a 26 percent chance of a quarter-point rate increase when the central bank next meets on May 4, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:20 p.m. Prior to the minutes, expectations stood at 21 percent. There is also a 92 percent chance of an increase by early July. Stevens is among officials in the Asia-Pacific region tightening monetary policy this year. Singapore’s central bank, which uses its currency as its main monetary-policy tool, said April 14 it will undertake a one-time revaluation of the local dollar, while Malaysia and India have boosted borrowing costs. Chinese Moves Australia’s policy makers also “noted the significant discussion during the month about the possibility that the Chinese authorities might soon allow some appreciation of the renminbi against the U.S. dollar,” today’s minutes said. By contrast, central banks in Europe, the U.K., and U.S. have left borrowing costs close to or at record lows. While economic recovery in the major advanced economies was “still tentative,” growth in Australia’s biggest trading partners in Asia, led by China, “was proceeding strongly,” the Reserve Bank of Australia’s minutes said. “This was feeding through into significant increases in the prices of resources commodities, including increases in contract prices for coal and iron ore, which were larger than had been expected a few months ago,” policy makers said. Fortescue Metals Group Ltd. , Australia’s third largest producer of iron ore, said today that third-quarter shipments jumped 53 percent amid increased demand from steel mills in China. Iron Ore The price of ore with an iron content of 62 percent delivered to China climbed to $179.4 a ton yesterday from $119.1 at the start of the year, according to The Steel Index . Reports published since the April 6 meeting show consumer confidence held close to its highest level in almost three years this month, and business sentiment held last month close to its highest level in almost eight years as companies reported a surge in forward orders and plans to hire extra workers. Gross domestic product grew in the fourth quarter at the fastest pace in almost two years, rising 0.9 percent from the previous three months. The economy expanded 2.7 percent from a year earlier. The central bank predicts a surge in business investment this year as resources companies expand projects, including the Chevron Corp.-led Gorgon liquefied natural gas venture in Western Australia. ‘Pose Challenges’ “Members noted that, while the Australian economy was benefiting significantly from developments in the resources sector, these would also pose challenges,” the minutes said, without being more specific. Employment has climbed around 200,000 since August, led by hiring in mining and financial services, potentially worsening a skills shortage that may fuel wage gains. Australia’s unemployment rate is 5.3 percent, almost half the level of the U.S. and Europe, where the jobless rates are 9.7 percent and 10 percent respectively. A gauge published last week of Australian consumers’ expectations about future inflation rose to its highest level in 18 months. Households surveyed this month expect consumer prices to climb 4.1 percent over the next 12 months, compared with 3.2 percent predicted the previous month, the Melbourne Institute said. The central bank, which said today it expects inflation to be around 2.5 percent this year, aims to keep annual consumer- price gains between 2 percent and 3 percent on average. Today’s minutes also said the nation’s housing market appeared to remain “buoyant.” “Population growth was strong, households had confidence about future income growth and mortgage rates were at below- average levels,” officials said. “At the same time, the supply of new housing was not expanding sufficiently.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australian Central Bank Says Rate Rise Was `Appropriate’ on Inflation Risk

March 15, 2010

By Jacob Greber March 16 (Bloomberg) — Australia’s central bank raised borrowing costs this month as the risk of faster economic growth stoking inflation outweighed the potential for renewed financial market turmoil caused by sovereign debt concerns. “Members concurred that the appropriate course was to set policy as required by the most likely outcome, and to be ready to respond to other outcomes if they eventuated,” central bank officials said in minutes released today in Sydney of their March 2 meeting. Governor Glenn Stevens is the first Group of 20 policy maker to increase borrowing costs this year after raising the overnight cash rate target two weeks ago by a quarter percentage point to 4 percent. Reserve Bank of Australia officials have also signaled further moves toward an “average” rate amid evidence the economy is expanding at or close to trend. “Rates are obviously heading higher, but we’re of the view the pace of tightening will be more gradual, and this confirms that,” said Su-Lin Ong , senior economist at RBC Capital Markets Ltd. in Sydney. “Domestically, they’re clearly pretty positive and repeated the idea that growth is probably at trend.” The Australian dollar fell to 91.29 U.S. cents at 12:08 p.m. in Sydney from 91.38 cents before the minutes were released. The two-year bond yield declined 2 basis points, or 0.02 percentage point, to 4.87 percent. Next Move Traders are betting there is a 28 percent chance of a quarter-point rate increase when the central bank next meets on April 6, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:53 a.m. Prior to the minutes, the chance of a move stood at 34 percent. “Members concluded that the evidence that had become available recently had confirmed that it remained appropriate for interest rates to move gradually towards normal levels,” the minutes said. Fiscal problems in Europe, if not “resolved satisfactorily,” could trigger fresh turmoil in markets and renewed weakness in the global economy, which “could have implications for Australia,” the minutes said. “But while such an outcome could not be ruled out, it was not the most likely,” they said. “The central expectation remained that the global expansion would continue at a reasonable pace with significant regional differences.” Policy makers cited market concerns about the level of debt in Greece and other European countries for their decision to keep borrowing costs unchanged in February, a move that confounded the forecast of all 20 economists surveyed by Bloomberg News for a quarter-point increase. Mining Boom Australia is leading the world in raising borrowing costs after four moves in five meetings, as increased company investment on new mines and resources projects such as the Chevron Corp.-led Gorgon natural gas project in Western Australia threatens to deepen a skills shortage that may drive up wages and inflation. Stevens had increased the benchmark rate from a half- century low of 3 percent in early October. “Members discussed the prospects for the resources sector and noted that it was unlikely that all planned projects would proceed at the rate that firms hoped for, in part reflecting capacity constraints in that sector,” they said today. The ratio of business investment to gross domestic product was expected to be “at very high levels in coming years.” Hours Worked Reports published since March 2 support the central bank’s view that the economy is expanding at or close to trend, after skirting last year’s global recession. Employers boosted the working hours of staff in February by the most since 1998, a sign the job market is poised to strengthen in coming months as companies add to payrolls after exhausting scope for extended work shifts. Aggregate hours worked surged 2.4 percent last month, a report showed last week. Australia’s unemployment rate was 5.3 percent in February, almost half the level in Europe and the U.S. GDP rose last quarter at the fastest pace in almost two years, climbing 0.9 percent from the three months through September, a report showed the day after this month’s interest-rate decision. “Domestically, most economic indicators continued to point to a strengthening in economic activity,” members said in today’s statement. Policy makers also noted that while lending for home loans “had cooled a little, house prices had gained significant momentum and were continuing to rise strongly for all but the bottom segment of the market.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australian Economy Will Grow Faster Than Average, Reserve Bank’s Lowe Says

March 9, 2010

By Jacob Greber March 10 (Bloomberg) — Australia’s economy is likely to expand at or above its average pace over the next few years, stoking inflation pressures and house prices, central bank official Philip Lowe said. “We will need to keep a strong focus on improving the supply side of the economy so that demand can grow solidly without putting upward pressure on inflation ,” Assistant Governor Lowe said in Sydney today. “We also face the significant challenge of increasing the supply of housing at a time when business investment is also very high.” Reserve Bank of Australia policy makers led by Governor Glenn Stevens last week raised borrowing costs for the fourth time in five meetings to ensure the nation’s faster-than- forecast economic rebound doesn’t push inflation above their target range of 2 percent to 3 percent. Unlike other advanced economies, Australia’s consumer price gains aren’t expected to stay below the target for an extended period, Lowe said. “The central scenario for the Australian economy is a positive one with growth over the next couple of years at, or above, average, a relatively strong labor market, and inflation consistent with the medium-term target,” Lowe, who heads the central bank’s economic analysis and research departments, told a gathering of the Urban Development Institute of Australia. The assistant governor also said a proposal by senior staff at the International Monetary Fund for central banks to raise their inflation targets to 4 percent “does not seem particularly sensible.” History Lessons “As history has taught us, inflation distorts decision- making in the economy, discourages saving, and increases uncertainty about the future,” Lowe said. “Ultimately higher inflation means higher nominal interest rates.” Lowe’s remarks echo Governor Stevens’ view that the nation’s economy has been growing for some months at or close to “trend,” as a surge in Asian demand for minerals and energy prompts companies such as Chevron Corp. and BHP Billiton Ltd. to boost hiring and investment in new resources projects. Stevens increased the overnight cash rate target on March 2 by a quarter point to 4 percent, adding to similar moves in December, November and October. He is the first policy maker from a Group of 20 nation to raise borrowing costs this year. Gross domestic product grew last quarter at the fastest pace in almost two years, rising 0.9 percent from the three months through September, and advertisements for job vacancies jumped in February by the most in more than a decade, according to reports published in the past week. Spare Capacity “Australia starts the current expansion with considerably less spare capacity than earlier thought likely, and with less than at the starting point of previous expansions,” Lowe said. Employers added 194,600 jobs in the five months through January, the biggest increase in more than three years, driving the unemployment rate to an 11-month low of 5.3 percent, which is almost half the level in the U.S. and Europe. Another 15,000 jobs were created in February, a report will show tomorrow, according to the median estimate of 25 economists surveyed by Bloomberg News. Investment and productivity growth are the “obvious keys” to enable domestic demand to expand without causing inflation to accelerate, the assistant governor said. Business investment is currently equivalent to around 16 percent of GDP, which is “not far below its peak level in the past four decades and is expected to rise a little further over the next couple of years,” Lowe said. ‘Bear Fruit’ The capital spending is “starting to bear fruit” among mining companies where “significant increases in resource exports are expected,” he said. Business confidence increased in February for a second month, matching November’s seven-year high, according to a National Australia Bank Ltd. survey published yesterday. “Given that countries with relatively high returns on capital typically have relatively high real interest rates, it should not be surprising that interest rates in Australia are above those in other countries where the return on capital is currently much lower,” Lowe said. Australia also faces the challenge of building more homes to satisfy demand from a growing population, which has been increasing recently at around the fastest pace in 50 years, according to the central bank. “With population growth above average, and the growth in housing stock below average, it is not surprising that there has been upward pressure on housing costs,” Lowe said. House Prices House prices surged 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark. One issue will be whether Australia can deal with an increase in dwelling construction at a time when investment elsewhere in the economy is “also very high,” Lowe said. “If housing construction is very strong at the same time that the resources sector is expanding, there will be competing demands for a range of skilled workers and specialized services,” he said. “Managing these competing demands and ensuring the adequate supply of workers with appropriate skills will be a challenge.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia May Increase Key Rate to 4% as Economy Rebounds, Economists Say

March 1, 2010

By Jacob Greber March 2 (Bloomberg) — Australia’s central bank may raise its benchmark interest rate today for the fourth time in five meetings amid signs that the strength of the nation’s economic recovery will stoke inflation. Governor Glenn Stevens will boost the overnight cash rate target to 4 percent from 3.75 percent, according to 14 of 19 economists surveyed by Bloomberg. Investors are betting there is a 62 percent chance of a quarter-point increase, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:46 a.m. The Australian dollar has soared to a 25-year high against the pound on speculation Stevens will become the first central banker from a Group of 20 economy to raise borrowing costs this year. Figures released today show retail sales increased 1.2 percent in January from the previous month, more than twice the gain expected by economists, as consumers shrug off concerns about rising borrowing costs. “The Reserve Bank will continue to tread carefully in lifting rates to more ‘normal’ levels,” said Craig James , a senior economist at Commonwealth Bank of Australia. “But it will be constantly stopping to assess the landscape.” A 25 basis point increase by the Reserve Bank today would widen the gap between Australia’s cash rate target and the U.S. benchmark to 3.75 percentage points, the most since January 2009. The difference between the Australia and U.K. benchmarks would be 350 basis points, the widest since 1990. Faster Growth The Australian dollar traded at 89.85 U.S. cents at 12:20 p.m. in Sydney from 90.09 cents late yesterday in New York. The currency bought 60.20 U.K. pence, up from 60.01 pence. Australia’s two-year government bond yield held at 4.59 percent. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, a separate analysts’ survey ahead of a report tomorrow shows, boosted by A$22 billion ($20 billion) in spending by Prime Minister Kevin Rudd on roads and schools. Concerns about sovereign debt in Europe and turmoil in financial markets may prompt Stevens to wait another month, some economists say. Today’s “cash rate decision is a close call,” said Paul Brennan , an economist at Citigroup Inc. in Sydney. “We slightly favor the bank leaving rates on hold.” Stevens was the first central banker in the world to increase interest rates three times last quarter, when he raised the Reserve Bank’s key rate to 3.75 percent from a half-century low of 3 percent. Mounting Pressure Pressure is also mounting on central banks in India, Malaysia and Indonesia to raise rates soon. Malaysia’s economy expanded a greater-than-forecast 4.5 percent in the three months ended Dec. 31 from a year earlier, and a report yesterday showed Indonesia’s inflation accelerated in February to the fastest pace in nine months. By contrast, the U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world’s largest economy is in a “nascent” recovery that still requires low interest rates. The Fed has kept its benchmark rate close to zero since late 2008. The European Central Bank’s rate is at a record low of 1 percent. A rebound in consumer confidence, greater business optimism, surging house prices, a drop in unemployment, and signs of an investment boom in resources projects such as Chevron Corp. ’s Gorgon natural gas project off Western Australia are forecast by the central bank to fuel an acceleration in Australia’s economy, one of the few to skirt last year’s global recession. ‘Better Than Most’ Gross domestic product probably rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg News. The economy may have expanded 2.4 percent from a year earlier, they said. The figures will be released at 11:30 a.m. on March 3. Australia has emerged from the global financial crisis “better than most,” helped by a “strong macroeconomic” environment, Governor Stevens said in Melbourne yesterday. Gross operating profits jumped 2.2 percent last quarter from the previous three months, the Bureau of Statistics said in Sydney yesterday. An index of manufacturing performance rose to 53.8 points in February, according to a separate report from the Australian Industry Group and PricewaterhouseCoopers. Sales of newly built dwellings surged 9.5 percent in January, the biggest increase since August, a report by the Canberra-based Housing Industry Association showed yesterday. The economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, Governor Stevens told a parliamentary committee in Canberra on Feb. 19. “Monetary policy must therefore be careful not to overstay a very expansionary setting.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia’s Stevens Sees Less Room for Economic Growth Without Inflation

February 18, 2010

By Jacob Greber Feb. 19 (Bloomberg) — Australia’s economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation , central bank Governor Glenn Stevens said. “Monetary policy must therefore be careful not to overstay a very expansionary setting,” Stevens told lawmakers at a parliamentary committee hearing in Canberra today. Policy makers said this week their decision to unexpectedly keep interest rates unchanged on Feb. 2 was “finely balanced” amid concern that European sovereign-debt risks may weaken the global economic recovery. Stevens said today borrowing costs in Australia are still between 50 and 100 basis points below what the central bank considers “normal.” “Stevens is quite bullish on domestic growth, but whether that translates into a March hike is another matter,” said Adam Carr , an economist at ICAP Australia Ltd. in Sydney. “I don’t know what more they need to see to hike again — it should already be very clear cut.” The Australian dollar traded at 89.25 U.S. cents at 9:56 a.m. in Sydney from 89.38 cents before the governor’s testimony began. The yield on two-year government bonds rose six basis points, or 0.06 percentage point, to 4.31 percent from 4.25 yesterday. A basis point is 0.01 percentage point. Stevens was the first central banker in the world to raise borrowing costs three times last year, taking the overnight cash rate target to 3.75 percent in December from 3 percent at the start of October. ‘Further Adjustments’ “If economic conditions evolve roughly as we expect, further adjustments to monetary policy will probably be needed over time to ensure that inflation remains consistent” with the bank’s target range of 2 percent to 3 percent, Stevens said. Inflation expectations are “reasonably well anchored” and a stronger currency will continue to help in containing price gains over the coming year, the governor said. Stevens’s testimony today came after the Federal Reserve Board raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent, another step in the U.S. central bank’s gradual retreat from its unprecedented actions to halt the deepest financial crisis since the Great Depression. The Fed left the benchmark overnight lending rate in a range of zero to 0.25 percent at its meeting on Jan. 27. Below Normal Traders are betting there is a 38 percent chance of a quarter-percentage-point rate increase when the Reserve Bank of Australia next meets on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10:02 a.m. Prior to today’s testimony, chances of a move stood at 40 percent. “We’re still below normal, I would say, which hitherto has been the appropriate place to be,” Stevens said. “There’s a little distance to go before you could characterize interest rates as normal.” Stevens said unemployment has peaked at less than 6 percent, “much lower than we or most others forecast.” Australia is experiencing its biggest jobs boom in five years. Employers added 194,600 workers in the five months through January, cutting the unemployment rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels. The jobs surge should help spur the economy, one of the few to skirt last year’s global recession after Prime Minister Kevin Rudd distributed more than A$20 billion ($18 billion) in cash to households and began spending another A$22 billion on roads, railways and schools. Australia’s gross domestic product will probably expand by “a bit over” 3 percent in 2010 and about 3.5 percent in the following two years, Stevens said. “Now we must turn our attention to the challenges of managing an economic expansion,” he said. “Issues of capacity, productivity, flexibility, adaptation to structural change and so on will once again come to centre stage.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Job Growth Surges, Unemployment Rate Falls; Aussie Strengthens

February 10, 2010

By Jacob Greber Feb. 11 (Bloomberg) — Australian employers added the most workers in more than three years in January, sending the currency surging on speculation the central bank will resume its record round of interest-rate increases. The number of people employed rose 52,700 from December, more than three times the 15,000 median estimate of 21 economists surveyed by Bloomberg News. The jobless rate fell to an 11-month low of 5.3 percent from 5.5 percent, the statistics bureau said in Sydney today. The biggest hiring boom in five years is increasing pressure on Reserve Bank of Australia Governor Glenn Stevens to resume raising borrowing costs to prevent a surge in wages feeding inflation. Traders doubled bets the bank will raise the benchmark lending rate by a quarter point to 4 percent next month, adding to similar moves in December, November and October. “It will concern the Reserve Bank that the unemployment rate has peaked at a very low rate,” said Helen Kevans , an economist at JPMorgan Chase & Co. in Sydney. “Imagine what’s going to happen later this year” to inflation and wages when a forecast surge in mining investment intensifies, she said. The Australian dollar, which has jumped 36 percent in the last 12 months, rose to 88.57 U.S. cents at 12:48 p.m. in Sydney from 87.72 cents just before the report was released. The two- year government bond yield jumped 11 basis points to 4.28 percent. A basis point is 0.01 percentage point. The S&P/ASX 200 index of stocks rose 1 percent to 4556.3. Demand for Energy Today’s report reinforces the central bank’s prediction last week that Australia’s economic growth will accelerate this year as companies such as Chevron Corp. boost investment to meet rising global demand for energy. Australian employers have added 194,600 jobs since August, the biggest five-month surge since they created 214,000 jobs between September 2004 and January 2005. The nation’s unemployment rate has also tumbled from 5.8 percent in October, after Prime Minister Kevin Rudd ’s government stoked the economy by distributing more than A$20 billion ($18 billion) in cash to consumers. Another A$22 billion is being spent on roads, railways and schools. In contrast, the unemployment rate in the U.S. was 9.7 percent in January, and 10 percent in November among European Union countries, the highest rate in more than 11 years. New Zealand’s jobless rate climbed to 7.3 percent in the fourth quarter, the highest in more than 10 years, and Japan’s rate was 5.1 percent in December. Stimulus Measures The rebound in Australia’s economy, one of the few to skirt last year’s global recession, is being driven by a combination of the government’s stimulus package, Governor Stevens’ decision to slash interest rates to a half-century low of 3 percent in April last year, a stronger Australian dollar and the resilience of China, Treasury Secretary Ken Henry said today in Canberra. Stevens unexpectedly kept the overnight cash rate target unchanged at 3.75 percent last week, saying information about the impact on the economy of quarter-point gains every month last quarter is still limited. Today’s report “should be substantial evidence for policy makers that labor-market conditions are tighter than expected,” said Ben Dinte , an economist at Macquarie Group Ltd. in Sydney. Increased Bets Investors are betting there is a 100 percent chance of a quarter-point increase in the overnight cash rate target to 4 percent by early May, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. Chances of a move at the central bank’s next meeting on March 2 stood at 48 percent at 12:30 p.m. in Sydney, up from 24 percent prior to today’s report. The central bank says Australia’s economic growth will accelerate this year, boosted by demand from China for natural resources such as coal and iron ore that will deepen a scarcity of workers. Gross domestic product will climb 3.25 percent in the three months through December 2010 from a year earlier, after gaining an annual 2 percent in the fourth quarter of 2009, the bank said in its quarterly monetary policy statement published last week. “It now looks likely that the unemployment rate has peaked around 5.75 percent, a much better outcome than thought likely early last year,” when the government forecast the jobless rate would reach 8.5 percent in 2010, the central bank said on Feb. 5. Resource Projects The number of full-time jobs gained 15,900 in January and part-time employment increased 36,900, today’s report showed. A shortage of workers may increase costs and cause delays at the nation’s liquefied natural gas projects, Fitch Ratings said on Feb. 8. The Maritime Workers Union of Australia has secured a A$50,000 pay increase over three years for workers at Total Marine Services Ltd., the Australian Broadcasting Corp. reported last week. Marius Kloppers , chief executive officer of BHP Billiton Ltd., the world’s biggest mining company, said yesterday that the skills shortage in Australia’s resources industry is emerging faster than expected. Chevron in December announced it signed an $82 billion deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6,500 jobs during construction. It is in addition to the Chevron-led Gorgon gas venture, which is forecast to create another 10,000 jobs when construction starts this year. Harvey Norman Holdings Ltd., Australia’s biggest furniture and electronics retailer, was “pretty happy” with Christmas sales at its stores compared with year-earlier numbers that were boosted by government stimulus, its Chairman Gerry Harvey said in an interview last month. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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India Says It Can’t Be Lax in Fighting Inflation as It Aims to Cool Prices

February 7, 2010

By Jacob Greber Feb. 8 (Bloomberg) — India can’t afford to be lax about fighting inflation as the nation seeks to slow price gains to 5 percent or less, central bank Deputy Governor K.C. Chakrabarty said yesterday. “You cannot afford to be in any way lax in monitoring inflation and controlling it,” Chakrabarty said in an interview in Sydney. “We would not like to have more than 4 or 5 percent inflation. That’s the challenge.” Central Bank Governor Duvvuri Subbarao raised the amount lenders are required to set aside as reserves last month to prevent excess money in the banking system from fanning price gains. India’s wholesale-food inflation rate rose to 17.56 percent in the week to Jan. 23, moving closer to an 11-year high and fueling speculation that Subbarao may raise interest rates. India’s “inflation is edging up, and that’s why you see we have already exited from the monetary stimulus, almost exited,” Chakrabarty said. “We hope that this will anchor inflation” expectations. Consumer-price inflation in India is the highest among Asia-Pacific countries, according to data compiled by Bloomberg. Prices paid by industrial workers rose 14.97 percent in December from a year earlier, the most in 11 years, while consumer-price inflation for farm workers in the country accelerated to 17.21 percent. The benchmark wholesale-price inflation rate was 7.31 percent in December, the highest in 13 months. Monsoon Rains Food costs are rising as the June-to-September monsoon rains, the main source of irrigation in Asia’s third-largest economy, were the weakest since 1972, hurting agriculture. The Reserve Bank of India hopes to cool inflation to 4 percent or 5 percent in 2011 or 2012, Chakrabarty said. Price gains won’t come to that level “so soon,” the deputy governor said, without saying if he was referring to consumer or wholesale prices. The central bank on Jan. 29 increased the so-called cash reserve ratio by 0.75 percentage points to 5.75 percent, a move it estimates will drain about 360 billion rupees ($7.7 billion) from the banking system. Subbarao left the benchmark reverse repurchase rate unchanged at 3.25 percent. “Our main policy instruments are all currently at levels that are more consistent with a crisis situation than with a fast-recovering economy,” Subbarao said at the time. “It’s therefore necessary to carry forward the process” of exiting them, he said, signaling the central bank may boost policy rates as growth strengthens. Growth Forecast The central bank raised its economic growth forecast to 7.5 percent in the fiscal year through March 2010, from an earlier estimate of 6 percent, and increased its inflation forecast to 8.5 percent from 6.5 percent. The Reserve Bank will give a forecast for the following year in April, Chakrabarty said. The government injected fiscal and monetary stimulus of more than 12 percent of gross domestic product between September 2008 and April last year, helping the South Asian nation’s economy grow 7.9 percent in the three months ended Sept. 30, the fastest pace in 18 months. Industrial production climbed 11.7 percent in November, the fastest pace in two years, as stimulus measures stoked demand for cars made by Maruti Suzuki India Ltd., the plasma screens of the Indian unit of LG Electronics Inc., and Hero Honda Motors Ltd. motorcycles. Global stocks plunged last week while bond default risks soared after Greece’s biggest union approved the second mass strike this month and tax collectors began a 48-hour walkout, showing that Prime Minister George Papandreou ’s parliamentary majority may not be enough to implement his plan to cut the European Union’s largest deficit. “Any time anywhere sovereign crisis is happening, we need to be cautious,” Chakrabarty said. “But we hope that we don’t have much exposure to these small countries until it affects the other economies. I think if it is controlled at the Greece level, I don’t think” it will spread. India’s financial markets “are more or less stable,” he added. “With higher growth it has to have the stability.” To contact the reporter on this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Mexico Central Bank’s Sanchez `Ready to Be Surprised’ by Economic Recovery

February 7, 2010

By Jacob Greber and Heidi Couch Feb. 8 (Bloomberg) — Mexico’s economy may expand more than expected in 2010 as the nation recovers from last year’s global slump, central bank Deputy Governor Manuel Sanchez Gonzalez said in an interview yesterday. “Everything points towards the direction of a recovery,” Sanchez said in Sydney. While the central bank forecasts growth of 3.2 percent to 4.2 percent this year, “I’m ready to be surprised as to the results of the economic recovery,” he said. Mexico’s $1.09 trillion economy was the worst performer in Latin America last year, shrinking 10.1 percent in the second quarter and 6.2 percent in the third quarter from a year earlier. Gross domestic product may expand “slightly” more than the government’s current 3 percent estimate, Deputy Finance Minister Alejandro Werner said Feb. 5. Sanchez is among policy makers visiting Sydney this week to attend a symposium organized by the Reserve Bank of Australia to celebrate its 50th anniversary. The Basel, Switzerland-based Bank for International Settlements is also hosting a meeting of central bank officials in Sydney. Global policy makers have to be “very careful” about how quickly they withdraw stimulus measures after cutting interest rates and boosting public spending to counter the deepest global recession since World War II, Sanchez said yesterday. “There is a tradeoff between sustaining the stimulus measures and having some risks as to maintaining those,” he said. “You have a risk of withdrawing too quickly, of leaving those measures too rapidly, so that this recovery may be interrupted. You want to be very careful to maintain those stimulus measures for the right time.” Inflation Outlook Central banks also have to remain watchful of inflation and maintain price stability, he said. “Every country has different situations as to the inflation prospects, but I’m confident also that the inflation pressures will continue to be relatively subdued in the near future,” Sanchez said. Mexico’s inflation in December was 3.57 percent, the slowest since 2006. The central bank kept the benchmark interest rate unchanged at 4.5 percent in January for a fifth straight meeting and warned that higher costs for state-controlled goods such as gasoline may fuel broader price increases. The latest monetary policy position is consistent with the central bank’s growth forecasts, Sanchez said. The region’s second-largest economy probably shrank about 7 percent in 2009, the most since 1932, the central bank estimates. “I’m very optimistic about the prospects of the Mexican economy in the short term and long term,” Sanchez said. “We had a very harsh recession last year. We’re going to have a very important improvement relative to the base we had last year.” The fourth quarter probably showed “very good dynamism of economic activity” and the unemployment rate has declined, Sanchez said. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia May Raise Rate to 4% as Employment Surge Stokes Price Pressures

February 1, 2010

By Jacob Greber and Dan Petrie Feb. 2 (Bloomberg) — Australia’s central bank may raise its benchmark interest rate by a quarter percentage point today for a record fourth straight meeting as the nation’s economic expansion fuels a surge in employment. Reserve Bank Governor Glenn Stevens will boost the overnight cash rate target to 4 percent, according to all 20 economists surveyed by Bloomberg. Futures traders estimate a 72 percent chance of an increase in the announcement scheduled for 2:30 p.m. in Sydney. The biggest jobs boom in more than three years, the largest increase in annual house prices since 2007 and reports showing inflation may accelerate in 2010 are increasing pressure on Stevens to continue leading the world in raising borrowing costs. Consumer confidence rose in January by the most in six months, a sign households weren’t deterred by his efforts to date. “The bank is planning to move the cash rate back to a ‘neutral’ target level of 4.5 percent by June at the latest,” said Bill Evans , chief economist at Westpac Banking Corp. in Sydney and a former analyst at the central bank and Treasury. “The economy is rebounding strongly from the downturn and there is less spare capacity than anticipated.” Stevens became the first central banker in the world to raise borrowing costs three times last year after Australia’s economy skirted the global recession, helped by A$20 billion ($18 billion) in cash handouts to consumers from Prime Minister Kevin Rudd and another A$22 billion in spending on roads, railways and schools. Rate Differences By contrast, officials in the U.S., the U.K. and Europe have kept their benchmark lending rates at historic lows this year. The rate gap has contributed to making the Australian dollar the top performer against its U.S. counterpart since the start of September among the most-traded currencies. Australia’s economy expanded in the three months through September for a third straight quarter, house prices surged 13.6 percent in 2009, and unemployment fell in December to an eight- month low of 5.5 percent, reports published since the bank’s last meeting in December show. Employers added 135,700 jobs from September through December as companies such as Chevron Corp. expand liquefied natural gas ventures to meet rising demand for energy, particularly in Asia. The economic recovery in China, Australia’s largest trading partner, has been “much quicker to date and prospects appear to be for good growth in 2010,” Stevens said on Dec. 1. China’s economy expanded 10.7 percent last quarter, the fastest pace since 2007. China Factor A quarter-point rate increase today “will be easily justified given strong Chinese growth, sticky core inflation, double-digit house-price gains” and falling unemployment, said Annette Beacher , an economist at TD Securities Ltd. in Singapore. The central bank’s so-called annual weighted-median gauge of core inflation rose 3.6 percent in the three months through December. The measure has held above the top of the bank’s target range of between 2 percent and 3 percent since the third quarter of 2007. While all the economists surveyed by Bloomberg forecast an increase today, financial markets are less certain. Traders are betting there is a 72 percent chance of a move, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:29 a.m. The chance of an increase stood at 76 percent on Jan. 28. Nouriel Roubini, the New York University professor who anticipated the financial crisis, said on Feb. 1 in Davos, Switzerland, that the U.S. growth outlook remains “very dismal,” and White House economic adviser Lawrence Summers said the economy is still mired in a “human recession.” Australia Different While such comments reflect concern that emergency measures to rescue banks and fight the global recession may be withdrawn too soon, they are “not at all appropriate for Australia,” said TD’s Beacher. “What goes down must eventually come up if the emergency has passed,” she said. There are signs Governor Stevens’s rate increases in October, November and December have begun restraining the mortgage market. Borrowing for home-buying fell to a five-year low last month, according to a report yesterday by Australian Finance Group Ltd., which says it accounts for more than 10 percent of the nation’s mortgage market. The group arranged A$1.55 billion of mortgages in January, 19 percent less than a year earlier and the lowest level for any month since 2005. Business confidence, particularly among retailing companies, fell in December to the lowest level in six months, a report by National Australia Bank Ltd. showed today. The bank’s sentiment index dropped 11 points to 8. Pre-Crisis Rate Interest rates in the economy have increased by about 1 percentage point relative to the cash rate over the past two years, meaning the current levels are consistent with a pre- crisis cash rate of “at least” 4.75 percent, Deputy Governor Ric Battellino said in a speech in December. Battellino said on Dec. 17 monetary policy is “now back in the normal range” after lenders raised business and home-loan rates by more than the central bank increased the overnight cash rate target. Australian & New Zealand Bank Group Ltd. boosted its variable mortgage rate by 35 basis points after Governor Stevens raised the overnight cash rate target by 25 basis points on Dec. 1. Commonwealth Bank of Australia raised its home-loan rate by 37 basis points and Westpac Banking Corp. moved by the largest amount, driving up its mortgage rate by 45 basis points. Westpac’s move means households with a A$300,000 mortgage are being charged an extra $1,008 a year, instead of the $576 that would have been imposed had the bank merely passed on the Reserve Bank’s increases. “Interest-rate rises are not good for consumers full stop,” Michael Luscombe , chief executive officer of Australia’s biggest retailer Woolworths Ltd., said in an interview on Jan. 28. “I think 2010 is going to be a challenging year.” To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.net ; Daniel Petrie in Sydney at dpetrie5@bloomberg.net

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Australian Property Prices Rise Most Since 2003, Manufacturing Increases

January 31, 2010

By Jacob Greber Feb. 1 (Bloomberg) — Australian house prices rose last quarter by the most since 2003, manufacturing expanded and a gauge of inflation jumped the most in six months, increasing the central bank’s scope to raise borrowing costs tomorrow. An index measuring the weighted average of prices for houses in the eight capital cities climbed 5.2 percent from the previous three months, the Bureau of Statistics said today in Sydney. Manufacturing grew last month after shrinking in December and consumer prices rose 0.8 percent, separate reports said. Signs of an economic rebound are adding to pressure on Reserve Bank Governor Glenn Stevens to extend a record round of interest-rate increases that took the benchmark lending rate to 3.75 percent in December from a half-century low of 3 percent in October. After today’s reports, investors increased bets Stevens will increase the overnight cash rate target tomorrow to 4 percent. “The Reserve Bank referred to house-price gains on several occasions in late 2009 when it was raising interest rates,” said Spiros Papadopoulos , a senior economist at National Australia Bank Ltd. in Melbourne. “The strength in the December quarter keeps it on track for a further rate increase tomorrow.” The Australian dollar traded at 88.33 U.S. cents at noon in Sydney from 88.61 cents just before the release of the housing report and a survey showing job advertisements fell last month. The two-year government bond yield dropped 1 basis point, or 0.01 percentage point, to 4.19 percent. Rate Bets Traders are betting there is a 64 percent chance of a quarter-point increase in the overnight cash rate target tomorrow, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:25 p.m. Prior to today’s reports, the chance of an increase stood at 62 percent. All 20 economists surveyed by Bloomberg News late last week forecast an increase in borrowing costs amid signs the nation’s economy will strengthen this year. The Australian Industry Group’s performance of manufacturing index rose 2.5 percent in January on rising demand for coal industry products, transport equipment and materials for housing construction. A gauge of Australia’s inflation rate held at 2.6 percent last month, according to TD Securities Ltd. The central bank aims to keep borrowing costs between 2 percent and 3 percent on average. House Prices Still, there are signs rising interest rates may hamper house-price growth this year. While prices surged 13.6 percent in 2009, some economists, including Alex Joiner at Australia & New Zealand Banking Group Ltd. in Melbourne, predict price growth will slow to between 5 percent and 8 percent in 2010. “The boom in house prices in 2009 is unlikely to be repeated this year as rising interest rates weigh on affordability,” Joiner said. Australian borrowing for home-buying fell to a five-year low last month, according to a report published today by Australian Finance Group Ltd., which says it accounts for more than 10 percent of the nation’s mortgage market. The group arranged A$1.55 billion ($1.37 billion) of mortgages in January, 19 percent less than a year earlier and the lowest for any month since 2005. Demand for homes surged last year after Prime Minister Kevin Rudd ’s government tripled in late 2008 payments to first- time buyers of new dwellings to A$21,000, and doubled the grant to A$14,000 for existing homes. Those payments were reduced last month to their original A$7,000. Mortgage Costs Home buyers are also paying more to service debt. Interest rates in the economy have increased by about 1 percentage point relative to the cash rate over the past couple of years, meaning today’s levels are consistent with a pre-crisis cash rate of “at least” 4.75 percent, Deputy Governor Ric Battellino said in a speech on Dec. 17. ANZ Bank boosted its variable mortgage rate by 35 basis points after Governor Stevens raised the overnight cash rate target by 25 basis points on Dec. 1. Commonwealth Bank of Australia raised its home-loan rate by 37 basis points and Westpac Banking Corp. moved by the largest amount, driving up its mortgage rate by 45 basis points. Westpac’s move means households with a A$300,000 mortgage are being charged an additional $1,008 a year, instead of the $576 that would have been imposed had the bank merely passed on the Reserve Bank’s increases. A separate report published today by ANZ Bank showed job vacancies advertised in newspapers and on the Internet in January fell 8.1 percent from December, the biggest drop since April 2009. The drop in advertisements signals a jobs boom may cool in coming months. Employers added 135,700 jobs in the four months through December, the biggest four-month gain since 2006, pushing down the jobless rate to an eight-month low of 5.5 percent. “The Reserve Bank will need to tread a cautious path over the early months of 2010 until a clearer picture of the economy emerges,” said Craig James , a senior economist at Commonwealth Bank in Sydney. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australian Home-Loan Approvals Fall More Than Estimates After Rates Rise

January 11, 2010

By Jacob Greber Jan. 12 (Bloomberg) — Australian home-loan approvals fell in November by the most in 18 months as central bank Governor Glenn Stevens led the world in raising borrowing costs. The number of loans granted to build or buy houses and apartments for owner-occupiers slumped 5.6 percent to 59,516 from October, when they fell a revised 1.9 percent, the statistics bureau said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for a 0.5 percent drop. The currency dropped on speculation approvals may slide further after Stevens boosted the benchmark interest rate in December for an unprecedented third straight month and the government slashed grants to first-time buyers of new homes to A$7,000 ($6,500) from A$21,000. Traders predict Stevens will boost the rate by another quarter point to 4 percent by March. “We’re going to see continued weakness in these numbers throughout the first half of the year,” said Helen Kevans , an economist at JPMorgan Chase & Co. in Sydney. The decline “will be welcomed by the Reserve Bank — they are wary of a housing bubble.” The Australian dollar fell to 92.71 U.S. cents at 12:07 p.m. in Sydney from 92.86 cents just before the report was released. The two-year government bond yield shed 1 basis point to 4.48 percent. A basis point is 0.01 percentage point. First-home buyers accounted for 22.1 percent of dwellings that were financed in November, down from 26 percent in October, the statistics bureau said today. Interest Rates Stevens and his board increased Australia’s overnight cash rate target in three moves from October to December to 3.75 percent from 3 percent as a rebound in exports to China from companies including BHP Billiton Ltd. helped fuel the biggest three-month surge in hiring in three years. Employers added 99,500 new jobs in the three months through November, cutting the jobless rate to 5.7 percent from 5.8 percent in October. Employers added another 10,000 jobs last month, according to the median estimate of 19 economists surveyed by Bloomberg News ahead of a Jan. 14 government report. Jobs advertised in newspapers and on the Internet jumped 6 percent in December, the biggest increase in 2 1/2 years, according to an Australia & New Zealand Banking Group Ltd. report published yesterday. Mortgage Repayments Investors are betting there is a 58 percent chance of an interest-rate increase at the central bank’s next meeting on Feb. 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:27 a.m. Chances of a quarter-point move in March are at 100 percent. Prior to today’s report, the bet on a quarter-point move next month stood at 64 percent. Last year’s interest-rate increases added about A$150 to monthly repayments on an average A$300,000 home loan, and may prompt consumers to trim spending that surged in the first half of the year after Prime Minister Kevin Rudd’s government distributed more than A$20 billion in cash handouts to households. An index of consumer confidence dropped 3.8 percent last month, led by waning sentiment among households with mortgages, according to a report by Westpac Banking Corp. Demand for mortgages surged in the first half of last year amid record purchases from first-time buyers after Treasurer Wayne Swan tripled to A$21,000 a grant to buyers of new homes, and doubled to A$14,000 payments for those purchasing existing dwellings. In May last year, Swan extended the increases through to the end of September, when they were partially reduced. The payments were cut to their original level of A$7,000 on Jan. 1 The value of lending to owner-occupiers declined 2.9 percent in November. The value of loans to investors who plan to rent or resell homes advanced 2.1 percent. The total value of loans fell 1.6 percent to A$22.8 billion, today’s report showed. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australian Employers Add 31,200 Jobs, Six Times Estimates; Currency Gains

December 9, 2009

By Jacob Greber Dec. 10 (Bloomberg) — Australian employers added workers for a third straight month in November, underscoring central bank Governor Glenn Stevens ’ view that he can raise interest rates without driving the unemployment rate too high. The number of people employed gained 31,200 from October, the statistics bureau said in Sydney today. The median estimate of 22 economists surveyed by Bloomberg was for an increase of 5,000. The jobless rate fell to 5.7 percent from 5.8 percent. Stevens raised the benchmark interest rate on Dec. 1 for an unprecedented third straight month and said this week the economy is stronger than he previously forecast as export demand boosts hiring at companies such as miner BHP Billiton Ltd. Qantas Airways Ltd.’s low-cost carrier Jetstar and energy company Chevron Corp. are also taking on more workers. “There is limited spare capacity in the labor market and the Reserve Bank already foreshadows a return to higher incomes next year as the economic upswing takes hold,” Annette Beacher , an economist at TD Securities Ltd. in Singapore, said ahead of today’s report. The number of full-time jobs gained 30,800 in November and part-time employment increased 300, today’s report showed. Australia’s economy shows signs of strengthening, helped by a surge in business confidence last month to the highest level in more than seven years, and increased Asian demand for iron ore, coal and gas. Power Deal Chevron announced last week that it has signed an $82 billion deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6,500 jobs during construction. It is in addition to the Chevron-led Gorgon gas field, which is forecast to create another 10,000 jobs when construction starts early next year. The labor market in “the mining sector is pretty much back to capacity,” Governor Stevens told economists in Sydney on Dec. 8. “There are a lot of other countries in the world who would like to have that problem.” Unemployment in the U.S. was 10 percent in November, 9.8 percent among European Union countries in October, the highest level in more than a decade, and 7.8 percent in the three months through September in the U.K. Rising consumer demand in Australia after Prime Minister Kevin Rudd’s government distributed more than A$20 billion ($18 billion) in cash to households is also prompting airlines and retailers to boost hiring. Airline Jobs Jetstar plans to hire 300 workers as it adds 700,000 new seats to existing routes with four extra Airbus 320 planes to meet rising domestic demand, the Australian Financial Review said today, citing Chief Executive Officer Bruce Buchanan . Michael Luscombe , chief executive officer of Australia’s largest retailer, Woolworths Ltd., told Bloomberg in an Oct. 20 interview the company has 6,000 job vacancies. Advertisements for job vacancies jumped in November by the most since May 2007, a survey by Australia & New Zealand Banking Group Ltd. showed this week. The government is also stoking demand for workers as it spends A$22 billion on roads, ports, schools and hospitals. An index of business confidence rose in November to the highest level since May 2002, according to a National Australia Bank Ltd. survey published on Dec. 8. “At the beginning of the year I would not have expected the economy be looking as good as it does” now, Stevens said this week. “I thought things would turn out rather worse than they have. But who’s complaining? Not me.” World Leader Stevens is the only central banker in the world to raise borrowing costs three times this year, predicting Chinese demand for iron ore will stoke a surge in economic growth in Australia, one of the few nations to skirt the global recession. Investors are betting there is a 44 percent chance of a quarter-point increase in the benchmark lending rate to 4 percent at the central bank’s next meeting in February, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 7:24 a.m. The participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.2 percent in November from a revised 65.3 percent, today’s report showed. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australian Consumer Confidence Falls 3.8% on Third Interest Rate Increase

December 8, 2009

By Jacob Greber

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Australia Raises Interest Rates a Record Third Month as Economy Rebounds

November 30, 2009

By Jacob Greber Dec. 1 (Bloomberg) — Australia’s central bank raised its benchmark interest rate by a quarter percentage point for an unprecedented third straight month as evidence mounts that the nation’s economy is strengthening. Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.75 percent from 3.5 percent in Sydney, as forecast by 19 of 20 economists surveyed by Bloomberg News. One forecast no change. Central bank policy makers say the economy has entered a “new upswing” that will last several years, boosted by rising consumer confidence and China’s demand for resources such as iron ore from BHP Billiton Ltd. House prices have climbed 10 percent this year, employment rose in October, and investment is forecast to surge in projects such as Chevron Corp. ’s Gorgon liquefied natural gas field, recent reports show. “I don’t think it’ll be lost on the board that 3.75 percent is still exceptionally stimulatory,” Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney, said ahead of today’s decision. “It’s a rate that will continue to provide significant ongoing support to an economy that will probably be firing on all cylinders in 2010.” The increase is the first time the central bank has raised borrowing costs at three straight meetings, boosting the rate from a half-century low of 3 percent. By contrast, officials in the U.S., U.K. and Europe have kept their benchmark lending rates at historic lows this year. Currency Surges Speculation that Stevens would continue to lead the world in raising rates has stoked this year’s 32 percent surge in the nation’s currency, making it the best performer among the 16 major currencies against the U.S. dollar. Investors bet there was a 76 percent chance that Stevens would increase the benchmark rate by a quarter-point today, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:51 a.m. Today’s decision also suggests policy makers were unmoved by the turmoil last week on global stock and credit markets after Dubai World, one of the emirate’s three main state-related holding companies, said it’s seeking to delay payments on $59 billion of debt. “It is now 18 years since Australia has experienced a negative in year-ended gross domestic product growth, a very prolonged expansion,” central bank Deputy Governor Ric Battellino said last week. “It is reasonable to assume that we will see this growth extended for a few more years yet.” Chinese Manufacturing A report published earlier today showed China’s manufacturing growth held at the fastest pace in 18 months in November, aiding the rebound of the world’s third-biggest economy and Australia’s largest iron ore customer. Australia’s economy expanded 1 percent in the first half of the year and is forecast by the Reserve Bank to grow 3.25 percent next year and in 2011. Third-quarter gross domestic product figures will be published on Dec. 16. Still, this year’s interest-rate increases add about A$150 to monthly repayments on an average A$300,000 home loan, and may prompt consumers to trim spending that surged in the first half of the year after Prime Minister Kevin Rudd’s government distributed more than A$20 billion to households. Consumers could “shut down” if borrowing costs are raised too quickly, said Ivan Hammerschlag , chairman of RCG Corp., which operates sporting shoe retailer The Athletes Foot, according to today’s Australian Financial Review. “Mortgage rates are still low, but I think the consumer forgets that.” Economic Risk “There’s a real risk if monetary policy is normalized too quickly that parts of the economy will start to weaken,” Nomura Australia Ltd. senior economist Stephen Roberts , the one analysts to forecast no change today, said prior to the announcement. “They don’t have too much economic growth and they don’t have a compelling inflation smoking gun,” he said. “They should move slowly.” Inflation cooled to the slowest pace in 10 years, gaining in the third quarter by an annual 1.3 percent, after advancing 1.5 percent in the previous three months. Policy makers aim to keep inflation between 2 percent and 3 percent on average. Building approvals unexpectedly dropped in October for the first time in five months, and manufacturing grew in November at a slower pace as companies reported fewer new orders and a faster decline in inventories, reports today showed. Stevens is under pressure to raise borrowing costs as a rebound in demand for commodities such as iron ore, coal and gas prompts energy companies to increase spending. Business Investment Companies surveyed by the Bureau of Statistics in a report published on Nov. 25 forecast investment of A$105 billion in the year ending June 30, 2010, which is 5.9 percent more than they estimated three months earlier. Rio Tinto Group and BHP Billiton boosted iron-ore production to a record in the third quarter to satisfy Chinese demand for steel, which helped exports surge 5 percent in September. The nation’s single biggest investment project, the A$43 billion Gorgon natural-gas venture involving Chevron , Exxon Mobil Corp. and Royal Dutch Shell Plc, will create as many as 10,000 jobs when construction starts early next year, Chevron said on Sept. 14. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net ;

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Australia’s RBA Says Pace of Rate Gains Is `Open’ Question; Currency Drops

November 16, 2009

By Jacob Greber Nov. 17 (Bloomberg) — Australia’s central bank says the pace of interest-rate increases is an “open question” as it balances the risk of keeping borrowing costs too low against an economy that may cool as government stimulus abates. “In considering the pace of that adjustment, members were conscious of balancing risks,” officials said in minutes released today of their Nov. 3 meeting, at which they became the first central bank to raise borrowing costs twice this year. The currency fell as traders pared bets on whether Governor Glenn Stevens will raise the benchmark rate on Dec. 1 by a quarter percentage point for a record third month. Business and consumer confidence, which helped Australia skirt the global recession, “could prove fragile,” and growth may slow as the effects of cash handouts to households and Prime Minister Kevin Rudd’s infrastructure spending fades. “There’s a very a real chance they will pause until March before further tightening,” said Stephen Roberts , a senior economist at Nomura Australia Ltd. in Sydney. “The minutes highlight that this rate hiking process was always going to have periods where they take time out to assess where they’re going.” Investors are betting there is a 60 percent chance Stevens will increase the key rate by another quarter point in two weeks to 3.75 percent, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 1:20 p.m. That would be the first time in history the bank has raised borrowing costs at three successive meetings. Prior to today’s minutes, there was a 72 percent chance of an increase. Policy makers aren’t scheduled to hold a meeting in January. Currency Falls The Australian dollar fell to 93.41 U.S. cents at 1:22 p.m. in Sydney from 93.76 cents before the minutes were released. The two-year government bond yield dropped 6 basis points, or 0.06 percentage point, to 4.52 percent. The evolving economic will call for further “gradual” increases in borrowing costs, though “the pace of the adjustment remained an open question,” today’s minutes said. “Business and consumer confidence could prove fragile, and economic activity at home and abroad might slow more than expected as the effects of stimulus measures faded.” The rising Australian currency will also “constrain output and dampen inflationary pressure,” while credit conditions for some borrowers “remained quite difficult,” the bank said. “On the other hand, a lengthy period with interest rates at a very low level carried its own risk,” policy makers said. Global Rates Governor Stevens raised the overnight cash rate target by a quarter point in October and this month, from a half-century low of 3 percent. By contrast, the U.S. Federal Reserve and Bank of Japan have kept borrowing costs at close to zero, while the European Central Bank and Bank of England have held rates at record lows. Fed Chairman Ben S. Bernanke said yesterday that economic “headwinds” of reduced bank lending and a weak labor market will probably restrain the pace of a U.S. economic recovery, warranting continued low borrowing costs. “It’s very much a case of the Reserve Bank versus the Fed,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “There are two modes of thought — we’re going to have a good recovery or we’re going to have a sluggish recovery. We do not have enough data to determine who is right.” Rate Differential Speculation that Stevens will continue to raise borrowing costs as Bernanke keeps his rate unchanged have driven a 33 percent gain in Australia’s currency this year, pushing it toward parity with the U.S. dollar. Still, there are signs that a recovery in Australia’s economy, which was stoked in the first half of this year by more than A$20 billion ($19 billion) in government cash handouts to households, may cool in the fourth quarter. Consumer confidence fell this month for the first time since May and retail sales unexpectedly dropped in September. Liaison with shopkeepers “pointed to retailers experiencing mixed conditions in September and October, although the broader perspective was that spending appeared to have held up reasonably well given that the earlier boost from the payments to households was fading,” today’s minutes said. Also, “members noted the weak outlook for construction of apartments, in contrast to the current strong population growth.” Inflation Target Underlying inflation and gains in the annual consumer price index were expected “to be consistent” with the central bank’s target range of between 2 percent and 3 percent, the minutes said. The central bank this month predicted the nation’s economy will expand at more than three times the pace it forecast in August. Gross domestic product will rise 1.75 percent this year and 3.25 percent in 2010, the bank said on Nov. 6. Three months earlier, it forecast gains of 0.5 percent and 2.25 percent respectively. The economy will continue its expansion in 2011 and 2012 as companies boost investment in resources, including Western Australia’s A$43 billion Gorgon liquefied natural gas project owned by Chevron Corp., Exxon Mobil Corp. and Royal Dutch Shell Plc, the bank predicted earlier this month. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australian Employers Unexpectedly Added 24,500 Jobs, Driving Up Currency

November 11, 2009

By Jacob Greber Nov. 12 (Bloomberg) — Australian employers unexpectedly added workers in October, pushing up the nation’s currency on speculation the central bank will raise interest rates for a record third straight month. The number of people employed rose 24,500 from September, the statistics bureau said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg was for a decline of 10,000. The jobless rose to 5.8 percent from 5.7 percent. Australia’s economy is expanding with “less spare capacity than earlier thought likely,” according to the central bank, as Chinese-led demand for resources spurs companies such as Chevron Corp. to hire workers. Reserve Bank Governor Glenn Stevens will raise the benchmark interest rate by a quarter percentage point on Dec. 1 to 3.75 percent, economists surveyed by Bloomberg say. “A labor market that’s not as weak as expected will provide more support to consumer spending,” which accounts for about 60 percent of the economy, Joshua Williamson , an economist at Citigroup Inc. in Sydney, said ahead of today’s report. “A quarter-point increase is on the table and the market will now be looking at a half-point rise in December.” The Australian dollar rose to the highest this year at 93.45 U.S. cents as of 11:31 a.m. in Sydney from 93.10 cents just before the report was released. The two-year government bond yield climbed to 4.76 percent from 4.68 percent. Investors are betting there is a 70 percent chance of a quarter-point boost in December, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 8:36 a.m. Full-Time Jobs The number of full-time jobs gained 2,900 in October and part-time employment increased 21,500, today’s report showed. Australia’s economy is growing faster and generating more jobs than the government and central bank forecast earlier this year, helped by Stevens’s decision to slash borrowing costs by a record 4.25 percentage points between September 2008 and April to a half-century low of 3 percent. Growth was also boosted in the first half of the year by more than A$20 billion ($19 billion) in cash handouts to households from Prime Minister Kevin Rudd’s government. Another A$22 billion is being spent on roads, ports and schools. “This is a significantly better outcome than is currently being experienced in other advanced economies,” Alex Joiner , an economist at Australia & New Zealand Banking Group Ltd. in Melbourne, said ahead of today’s report. The jobless rate will remain around 6 percent to 6.5 percent in 2010, ANZ predicts. The unemployment rate in the U.S. jumped to 10.2 percent last month, the highest level since 1983 and the European Union’s rate climbed to 9.7 percent in September, the worst result since January 1999. Interest Rates Signs of a rebound in Australian employment were among reasons Stevens raised the overnight cash rate target by a quarter point in October and this month to 3.5 percent, and signaled further “gradual” increases. “The Australian economy is operating with less spare capacity than earlier thought likely, and the outlook for the next few years has improved,” the central bank said in its quarterly monetary policy statement published last week. While employment growth is expected “to be subdued” over the next couple of quarters, before accelerating in 2010, the outlook for the labor market has “improved” since the bank’s August policy statement, it said on Nov. 6. It didn’t provide specific forecasts for the jobless rate. Australian gross domestic product growth will accelerate from 1.75 percent this year to 3.25 percent in 2010, the central bank said. In August, the bank forecast gains of 0.5 percent and 2.25 percent respectively. The economy expanded 1 percent in the first half of this year. Business Investment The economy is forecast to continue its expansion in 2011 and 2012 as companies boost investment in resources, including Western Australia’s A$43 billion Gorgon liquefied natural gas project owned by Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc. Projects such as Gorgon, which is expected to generate 10,000 jobs, were among reasons the government this month scrapped a May prediction that the jobless rate would rise to 8.25 percent in the second quarter of next year. Treasurer Wayne Swan said on Nov. 2 that unemployment will peak at 6.75 percent by the June quarter of 2010 before decreasing to 6.5 percent the following year. The lower forecast means the equivalent of 250,000 fewer full-time jobs will be lost, he said. Recent reports showed business confidence rose in October to near its highest level in almost six years, home-loan approvals gained in September by the most in six months and house prices jumped 8.4 percent in the six months through Sept. 30. The participation rate, which measures the labor force as a percentage of the population aged over 15, held at 65.2 percent in October, today’s report showed. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Consumer Confidence Falls After Two Straight Interest-Rate Rises

November 10, 2009

By Jacob Greber Nov. 11 (Bloomberg) — Australian consumer confidence fell for the first time since May after the central bank raised borrowing costs on Nov. 3 for a second straight month and signaled further “gradual” increases. The sentiment index dropped 2.5 percent to 118.3 points in November, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Nov. 2 and Nov. 8 and released today in Sydney. Weaker consumer confidence may give Reserve Bank Governor Glenn Stevens scope to keep the benchmark interest rate unchanged in December at 3.5 percent, after quarter percentage point increases in October and this month. A report tomorrow may show Australia’s unemployment rate rose in October to 5.8 percent from 5.7 percent, say analysts surveyed by Bloomberg. “We have probably now reached the point in the rate hike cycle when households will become increasingly sensitive to higher rates,” said Bill Evans , chief economist at Westpac Bank in Sydney. “However, confidence is still at remarkably high levels and the central bank is likely to take the opportunity to gradually remove more of the stimulus.” The Australian dollar traded at 93.01 U.S. cents at 10:32 a.m. in Sydney from 93.05 cents just before the report was released. The two-year government bond yield was unchanged at 4.71 percent. A basis point is 0.01 percentage point. Cash Handouts Consumer confidence surged 37 percent in the five months through October as Australia skirted the worst global recession since World War II, boosted by the central bank’s record 4.25 percentage points of interest-rate cuts between September 2008 and April, plus more than A$20 billion ($19 billion) in government cash handouts to households. The nation’s benchmark S&P/ASX 200 stock index has gained 28 percent this year. Stevens this month became the first central bank chief in the world to raise borrowing costs twice this year, citing a surge in consumer and business confidence as well as rising demand from China for exports such as iron ore and coal. Business confidence rose in October to near its highest level in almost six years, according to a National Australia Bank Ltd. survey published yesterday. Economic Growth The nation’s economy is expanding faster than the central bank forecast three months ago. The bank said last week gross domestic product will rise 1.75 percent this year and 3.25 percent in 2010. In August, it forecast expansions of 0.5 percent and 2.25 percent respectively. “A further gradual lessening of monetary stimulus is likely to be required over time,” the Reserve Bank said Nov. 6. Policy makers will increase the overnight cash rate target by a quarter point Dec. 1, according to 14 of 17 economists surveyed by Bloomberg. Investors are also betting there is a 76 percent chance Stevens will raise the rate by a quarter point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10:30 a.m. All of the five components of the index fell in November, led by a 4 percent drop in the gauge of family finances over the next 12 months, today’s report said. Assessments of economic conditions over the next 12 months slipped 2.5 percent, and opinion on whether now is a good time to buy major household items declined 1.2 percent. “Retailers should still be encouraged given that opinions on ‘whether now is a good time to buy a major household item’ are still up 58 percent on a year ago,” Evans said. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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RBA Says Australia Growth to Beat Forecasts, Rates to Rise; Currency Gains

November 5, 2009

By Jacob Greber and Victoria Batchelor Nov. 6 (Bloomberg) — Australia’s central bank said the nation’s economy will expand at more than three times the pace it forecast in August, prompting it to continue to lead the world in raising interest rates. “A further gradual lessening of monetary stimulus is likely to be required over time,” the Reserve Bank said in Sydney today. Gross domestic product will rise 1.75 percent this year and 3.25 percent in 2010, the bank said. Three months ago, it forecast gains of 0.5 percent and 2.25 percent respectively. Governor Glenn Stevens this week became the first central banker to raise borrowing costs twice this year, citing a rebound in consumer confidence and strengthening Chinese demand for exports, which rose in September by the most in almost a year. Most economists surveyed by Bloomberg expect Stevens will increase the benchmark rate by another quarter point next month. The economy will continue its expansion in 2011 and 2012 as companies boost investment in resources, including Western Australia’s A$43 billion ($39 billion) Gorgon liquefied natural gas project, the bank said in today’s quarterly monetary policy statement. “Growth in business investment and exports is expected to be strong, underpinned by the ongoing expansion of the resources sector,” the bank said. “The outlook for Australia’s terms of trade has also improved, with some increase now expected over the next year or two.” The Australian dollar traded at 91.11 U.S. cents at 11:32 a.m. in Sydney from 91.01 cents before the statement was released. The two-year government bond yield was little changed at 4.66 percent. Government Stimulus Stevens and his board raised the overnight cash rate target by a quarter percentage point in October and this week to 3.5 percent, and signaled further “gradual” increases. The economy is growing faster and generating more jobs than the government and central bank forecast earlier this year, helped by Prime Minister Kevin Rudd’s decision to distribute A$20 billion in cash to households. He is also spending another A$22 billion updating roads, railways and schools. Core inflation is forecast to slow to 2.25 percent in 2010 from 3.25 percent in 2009, the bank said. Policy makers aim to keep inflation between 2 percent and 3 percent on average. The headline consumer price index, which includes more volatile prices such as gasoline, will hold within that target range through to the June quarter of 2012. Slower wages growth and falling costs for imported goods because of the recent gain in the Australian dollar “suggest that a further moderation in underlying inflation is likely over the period ahead,” today’s report said. Currency Parity Speculation that Stevens will continue raising borrowing costs, as counterparts in the U.S., Europe and the U.K. to keep their own benchmark rates at historic lows, has pushed Australia’s currency toward parity with the U.S. dollar. Australia’s currency will trade for 1 U.S. dollar next year, according to forecasters at Citigroup Inc., Calyon, Barclays Capital and National Australia Bank Ltd., implying an additional 10 percent gain. Hedge funds and other large traders last month had more bets than at any time since July 15, 2008, that the rally will continue, data from the Washington-based Commodity Futures Trading Commission show. Traders are betting there is a 60 percent chance policy makers will increase the key rate by another quarter point on Dec. 1, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 6:20 a.m. today. That would be the first time in history the bank has raised borrowing costs at three successive meetings. Rates Low “The cash rate remains at a low level,” today’s statement said. GDP will rise 3.25 percent in 2011 and 3.5 percent in the year through June 30, 2012, according to today’s forecasts, which the bank said it prepared using the assumption that the benchmark lending rate “increases gradually.” “Conditions in the global and Australian economies are significantly better than was expected when the board lowered the cash rate to 3 percent,” a half-century low, in April, today’s statement said. ‘The Australian economy is operating with less spare capacity than earlier thought likely, and the outlook for the next few years has improved,” the bank added. While employment growth is expected “to be subdued” over the next couple of quarters, before accelerating in 2010, the outlook for the labor market has “improved” since the bank’s August policy statement. The bank didn’t provide specific forecasts for the unemployment rate, which unexpectedly fell in September for the first time in five months, declining to 5.7 percent from 5.8 percent. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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RBA’s Stevens Tones Down Australia Rate Rhetoric as Currency Nears Parity

November 3, 2009

By Jacob Greber Nov. 4 (Bloomberg) — Australia’s central bank Governor Glenn Stevens signaled a surge in the nation’s currency to near parity with the U.S. dollar has given him scope to slow the pace of future interest-rate increases . Stevens, who yesterday became the first central banker in the world to raise borrowing costs twice in 2009, said the 28 percent gain in the currency this year may hurt exports and cool inflation, allowing him to “gradually” raise borrowing costs. Just last month, he warned it may be “imprudent” to keep rates at “emergency levels.” The local currency and bond yields fell as traders slashed bets on another quarter-point boost next month, after Stevens raised the overnight cash rate target to 3.5 percent from 3.25 percent. Investors have been driving the Australian dollar toward parity with the greenback, betting China’s economic growth will boost exports from Australia, the biggest shipper of iron ore used in making steel. Policy makers “are probably glad for the parity talk as it reduces the amount of work they need to do with monetary policy,” said Matthew Johnson , an interest-rate strategist at UBS AG in Sydney. “A December move is a 50-50 proposition.” Traders have a 58 percent expectation that Stevens will increase the key rate by another quarter point on Dec. 1, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 6:38 a.m. today. Prior to Stevens’s comments, they had a 96 percent bet on such a gain. Parity Forecast The Australian dollar fell to as low as 89.17 U.S. cents in Sydney yesterday from 90.88 cents just before the decision was released. It was buying 90.16 cents at 7:52 a.m. today. A year ago, the currency traded at 67.91 cents. The two-year government bond yield dropped 18 basis points to 4.55 percent. A basis point is 0.01 percentage point. Citigroup Inc., Calyon, Barclays Capital and National Australia Bank Ltd. forecast the Australian currency will trade at 1 U.S. dollar next year, implying an additional 11 percent gain. Hedge funds and other large traders have more bets than at any time since July 15, 2008, that the rally will continue, data from the Washington-based Commodity Futures Trading Commission show. Yesterday’s rate “decision reflects Australia’s relative strength, which is one of the reasons why the local dollar has been rising for the past year,” said Robert Cunneen , Sydney- based senior economist at AMP Capital Investors, which holds $75 billion in assets. Global Rates “It’s a bit ambitious at this stage to think of the Australian dollar immediately heading to parity, but it has the potential to do so,” if interest-rate differentials continue to widen between here and overseas, Cunneen added. Australia’s benchmark rate of 3.5 percent contrasts with the U.S. Federal Reserve’s rate of close to zero. The European Central Bank and Bank of England benchmark rates are at record lows of 1 percent and 0.5 percent respectively. The Bank of Japan’s rate is also close to zero. The “rise in the exchange rate is likely to constrain output in the tradeables sector and dampen price pressures,” the governor said yesterday. Steven’s statement contrasts with comments last month that suggested he was prepared to keep aggressively raising borrowing costs and tolerate further appreciation in the local dollar, the best-performing in the past 12 months of 171 currencies tracked by Bloomberg, as it “may help contain inflation.” The central bank’s measure of core inflation, the so-called weighted median index of consumer prices, rose 3.8 percent in the third quarter from a year earlier, holding above the top of Stevens’s target range of between 2 percent and 3 percent for a ninth straight quarter, a report showed on Oct. 28. ‘Code Word’ Now that the risk “of serious economic contraction” in Australia has passed, “the board’s view is that it is prudent to lessen gradually the degree of monetary policy stimulus,” Stevens said yesterday. “The word ‘gradually’ is code for hiking regularly by a quarter point, but not at every meeting,” said Rory Robertson , an economist at Macquarie Group Ltd. in Sydney. The central bank aims “to edge up its policy rate to more normal levels, while doing as little damage to the economy as possible.” Treasurer Wayne Swan said on Nov. 2 the economy will expand faster than he previously forecast, growing 1.5 percent in the 12 months to June 30, 2010, driven by demand from China for Australia’s resources, and rising consumer confidence. In May, he forecast a 0.5 percent contraction. GDP will accelerate to 2.75 percent the following fiscal year, he said this week. The economy grew 1 percent in the first six months of this year. Stevens’s statement yesterday also dropped references, made in the minutes of the bank’s October meeting, that the “very expansionary setting” of monetary policy was “possibly imprudent.” Mortgage Costs Fourteen of 17 economists surveyed by Bloomberg News after yesterday’s decision said Stevens will follow next month with another quarter-point move. Three expect no change. Yesterday’s rate boost will add A$50 ($44.80) to monthly repayments on an average A$300,000 home loan. Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac Banking Corp. raised their variable mortgage rates by a quarter point. “This decision is a tough one for Australian families and businesses, but it’s also another indication that rates could not stay at 50-year emergency lows forever,” Treasurer Swan told reporters in Brisbane. Reports published in recent days show bank lending unexpectedly fell in September for the first time in nine months amid weaker demand for business credit, and manufacturing growth slowed in October. Retail Sales Retail sales , adjusted for inflation, probably fell 0.5 percent in the three months through Sept. 30 from the previous quarter, according to the median estimate of 23 economists surveyed by Bloomberg. The retail figures will be published at 11:30 a.m. today in Sydney. “It looks like the Reserve Bank is doing the right thing,” billionaire Gerry Harvey , chairman of Australian retailer Harvey Norman Holdings Ltd., said in an interview yesterday. “Those people who are looking at interest rates at 3.5 percent are saying to themselves it’s still low and my mortgage is still a lot less than I was paying before” Harvey said by telephone. “It shouldn’t have a great effect in the marketplace.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia May Raise Interest Rate to At Least 3.5% as Economy Strengthens

November 2, 2009

By Jacob Greber Nov. 3 (Bloomberg) — Australia’s central bank will raise its benchmark interest rate today by at least a quarter percentage point, the second increase in four weeks, amid signs the economy is strengthening, economists and traders say. Reserve Bank Governor Glenn Stevens will boost the overnight cash rate target to 3.5 percent from 3.25 percent at 2:30 p.m. in Sydney, according to 18 of 22 economists surveyed by Bloomberg News. The rest expect a half-point increase. Futures traders are betting on a quarter-point boost. Keeping borrowing costs at “very low levels” may be “imprudent” and threaten its inflation target, the bank said last month, amid surging consumer confidence, house price gains and Chinese demand for natural resources. Stevens, the first Group of 20 policy maker to raise borrowing costs since the height of the global recession, has also signaled this year’s 29 percent gain in the nation’s currency may help contain inflation. “The case for a larger-than-expected increase is always strongest at the early stages of the tightening cycle,” said Bill Evans , chief economist at Westpac Banking Corp. in Sydney, who predicts a half-point gain. “The risks of tightening too slowly are also high when policy is at its most stimulatory since imbalances are more likely to emerge.” Australia’s economy is growing faster and generating more jobs than Treasurer Wayne Swan forecast six months ago, helped by A$20 billion ($18 billion) in government cash handouts to consumers and Stevens’ record interest-rate cuts between September 2008 and April, when he slashed the benchmark rate by 4.25 percentage points to a half-century low of 3 percent. Economic Growth Stevens raised the rate by a quarter point Oct. 6. The only other countries to raise borrowing costs this year are Israel and Norway. Gross domestic product will expand 1.5 percent in the 12 months to June 30, 2010, Treasurer Wayne Swan said yesterday after scrapping his May prediction of a 0.5 percent contraction. GDP will accelerate to 2.75 percent the following fiscal year, he said. The economy grew 1 percent in the first six months of this year. Unemployment is also expected to peak at 6.75 percent in the second quarter of next year, well below the 8.5 percent rate Swan forecast in May for the three months through June 30, 2011. “The Australian economy has turned out to be quite a lot stronger than we thought,” Reserve Bank Assistant Governor Philip Lowe said last month. “It’s entirely appropriate we go back to a more normal setting in monetary policy. And that’s the process that’s under way.” House Prices There are also signs of a surge in some asset prices. A report published yesterday showed Australian house prices jumped 4.2 percent in the three months through September from the previous quarter, when they rose by the same amount. The nation’s benchmark S&P/ASX 200 index of stocks has climbed more than 20 percent this year. Stevens should raise borrowing costs today to keep a lid on an “irrational exuberance” in the housing market that is “arguably now out of line,” Mark Joiner , National Australia Bank Ltd.’s chief financial officer, told the Australian Financial Review in an interview published on Oct. 31. Still, Stevens has scope to limit today’s increase to a quarter-point move, which would add A$50 to monthly repayments on an average A$300,000 home loan. Reports published in recent days show bank lending unexpectedly fell in September for the first time in nine months amid weaker demand for business credit, and manufacturing growth slowed in October. Inflation Slows The consumer price index rose in the third quarter by an annual 1.3 percent, the smallest gain since the second quarter of 1999, after advancing 1.5 percent in the previous three months, a government report showed on Oct. 28. Inflation isn’t “sufficiently high to justify the Reserve Bank accelerating to a half-point hike,” said David de Garis , a senior economist at National Australia Bank Ltd. in Sydney. Investors are certain Stevens will raise the overnight cash rate target by a quarter point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. They expect only an 8 percent chance of a half-point increase, the index showed at 8:33 a.m. The Reserve Bank, which scrapped its forecast in August for the economy to contract this year, will publish revised predictions on Nov. 6. Its most recent estimate was for GDP to expand 2.25 percent in 2010 and 3.75 percent in 2011. “The Reserve Bank’s rate hikes will come regularly — at every meeting until February — but in small steps,” said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney. “There is little to be gained from spooking the horses” today with a half-point gain. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Central Bank Signals Tolerance of Further Currency Appreciation

October 20, 2009

By Jacob Greber Oct. 20 (Bloomberg) — Australia’s central bank signaled it’s prepared to keep raising interest rates and tolerate further appreciation in the nation’s currency to help restrain consumer prices as the economy strengthens. A “very expansionary setting of policy was no longer necessary, and possibly imprudent,” officials said in minutes of an Oct. 6 meeting, released today in Sydney. Gains in the nation’s dollar, the best-performing this month of the 16 most- traded currencies, “may help contain inflation,” they said. The minutes drove Australia’s currency above 93 U.S. cents, the highest level in 14 months, as investors bet Reserve Bank Governor Glenn Stevens will boost the overnight cash rate target next month. Stevens unexpectedly raised the benchmark a quarter point to 3.25 percent this month, becoming the first Group of 20 central banker to increase borrowing costs. “The dollar is well and truly on the way to parity” versus the U.S. currency, said Savanth Sebastian , an economist at Commonwealth Bank of Australia in Sydney. “At this early stage, the Reserve Bank isn’t worried about the currency because their concern is to remove stimulus. Once they get back to a neutral setting and the currency is at parity, they’ll start to look at holding interest rates steady.” The Australian dollar jumped to 93.11 U.S. cents immediately after the minutes were released from 92.76 cents earlier. It traded at 92.86 cents at 5:12 p.m. in Sydney. Inflation Threat Holding rates at their current “very low levels” could threaten the bank’s target of keeping inflation between 2 percent and 3 percent, the Reserve Bank said in the minutes. Annual core inflation , which excludes food and energy costs, was 4.2 percent in the three months through June, a report showed on July 22. Third-quarter figures will be published on Oct. 28. Barclays Capital, Citigroup Inc. and National Australia Bank have forecast the Australian dollar will reach parity in six to 12 months. Investors are certain Stevens will raise the benchmark rate by at least another quarter point on Nov. 3, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. Chances of a half-point increase next month were 20 percent, the futures showed at 4:28 p.m., down from 26 percent prior to the minutes. Government Stimulus Policy makers noted that there was still a possibility the economy’s recent strength was due to the impact of A$42 billion ($39 billion) in government spending and handouts, which “left open the attendant risk that activity might slow as that stimulus faded.” “It was also likely that the appreciation of the exchange rate would act as a contractionary influence on activity and help contain inflation,” the minutes said. Philip Lowe , assistant governor at the Reserve Bank, said in Sydney this week the nation’s currency has gained because Australia has “a high return of capital with a lot of investment.” “We will have a higher average exchange rate than we’ve had over the past couple of decades,” Lowe said on Oct. 19. Australia’s currency has averaged 72 U.S. cents since being floated in December 1983, according to data compiled by Bloomberg. It has surged 54 percent since hitting a five-year low on Oct. 27 last year. Stevens said last week that experience “counsels against” an approach where policy makers who cut rates rapidly in response to a threat become “too timid to lessen that stimulus in a timely way when the threat has passed.” Woolworths Chief “It would go against history to think the low rates we have at the moment will continue ad infinitum,” Michael Luscombe , chief executive officer of Woolworths Ltd., Australia’s largest retailer, said in an interview. The benchmark rate will rise above 5 percent if policy makers “determine the economy is overheating or inflation is getting out of control,” Luscombe added. Australia’s economy “had for some time been noticeably stronger than had earlier been expected,” today’s minutes said. Gross domestic product rose 1 percent in the first half of this year as consumers increased spending, spurred by the central bank slashing borrowing costs by a record 4.25 percentage points between September last year and April. Policy makers noted that a “sizeable gap” had opened up between the performance of Australia and other developed economies. “The board had to be mindful of local conditions in setting policy,” the minutes said. Such commentary was “extremely bullish on rate hikes and there wasn’t too much discussion about currency concerns,” said Commonwealth Bank’s Sebastian. “In years gone by, you would have seen discussion about the impact of the Australian dollar and how it’ll curtail growth.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Stevens’s `Timid’ Talk May Herald Largest Australian Rate Rise Since 2000

October 15, 2009

By Jacob Greber Oct. 16 (Bloomberg) — Australian central bank Governor Glenn Stevens’s view that he can’t be “too timid” in raising borrowing costs is stoking speculation the benchmark interest rate will be increased next month by the most in a decade. Experience “counsels against” an approach where policy makers who cut rates rapidly in response to a threat become “too timid to lessen that stimulus in a timely way when the threat has passed,” Stevens said in Perth yesterday. The comments pushed Australia’s currency to a 14-month high and prompted investors to triple bets policy makers will increase the overnight cash rate target on Nov. 3 by half a percentage point to 3.75 percent. Stevens became the first Group of 20 central banker to increase borrowing costs when he unexpectedly boosted the rate last week by a quarter point. “Stevens has put 50 basis-point moves on the table,” said Matthew Johnson , an interest-rate strategist at UBS AG in Sydney. “The safest time to raise rates quickly is when you know they are at the wrong level, and this is the first time a recession has ended with so little spare capacity. “It’s not going to be long before the economy is running at full pelt again.” Investors are certain Stevens will raise rates at least another quarter point next month as consumer confidence rises and unemployment falls, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. Chances of a half-point increase next month rose to 36 percent from 10 percent prior to Stevens’s speech and 2 percent on Oct. 14, the futures showed at 9:09 a.m. today. Currency Rises The Australian dollar rose to as high as 92.11 U.S. cents after yesterday’s speech, the strongest since August 2008, and traded at 92.09 cents at 9:20 a.m. in Sydney today. The two-year government bond yield jumped to 4.81 percent at 9:20 a.m. today from 4.63 percent before yesterday’s speech. “I’ve said it consistently, interest rates will go up because they’ve been brought to emergency lows,” Prime Minister Kevin Rudd told Melbourne radio station 3AW today. “I don’t see any point whatsoever in trying to be cute with people about that.” Stevens slashed borrowing costs by a record 4.25 percentage points between September 2008 and April to cushion the nation’s economy against the global financial crisis. His cuts included 1 percentage point reductions in October, December and February, the biggest moves since 1992. ‘Too Timid’ “If we were prepared to cut rates rapidly, to a very low level, in response to a threat but then were too timid to lessen that stimulus in a timely way when the threat had passed, we would have a bias in our monetary policy framework,” Stevens said. “Experience here and elsewhere counsels against that approach.” “The governor has made it clear he’s keen to get rates back to normal quickly,” said RBS Group Australia Ltd. Chief Economist Kieran Davies , who is tipping a half-point increase next month. The last time Australian policy makers raised borrowing costs by that much was in February 2000. Davies is the only one of 19 economists surveyed by Bloomberg after Stevens’s speech to tip a half point increase. Sixteen expect a quarter-point move and two predict no change. Australia is only the second country after Israel to raise borrowing costs since the height of the global financial crisis. Israel isn’t a member of the G-20. U.S. Federal Reserve Chairman Ben S. Bernanke said last week he and his colleagues at the Fed “believe that accommodative policies will likely be warranted for an extended period.” Other Asian central banks may follow Stevens in raising rates. ‘Tightening Wave’ “The region could be at the leading edge of the monetary tightening wave, though we believe the pace will be measured and modest,” Lee Heng Guie , chief economist at CIMB Investment Bank Bhd. in Kuala Lumpur, part of Malaysia’s second-largest banking group, said yesterday in a note to clients. “India and Korea will probably be the first among the Asian central banks to raise rates in the first half of 2010.” Evidence is mounting that Australia’s economy, which skirted the global recession, is strengthening. Recent reports show consumer confidence rose this month to the highest level in more than two years, the jobless rate unexpectedly fell to 5.7 percent in September from 5.8 percent in August, the first drop in five months, and retail sales gained. Gross domestic product rose 1 percent in the first half of this year as consumers increased spending after the government distributed more than A$20 billion ($18 billion) in cash to households. The government is spending another A$22 billion on roads, railways and schools. “The period of greatest weakness in the Australian economy is probably past,” Stevens said yesterday. “Barring another serious international setback, the economy is likely to continue on a path of gradual expansion during 2010.” To contact the reporter for this story: Jacob Greber in Perth at jgreber@bloomberg.net

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Australian Consumer Confidence Jumps to Two-Year High After Rate Increase

October 13, 2009

By Jacob Greber Oct. 14 (Bloomberg) — Australian consumer confidence jumped to the highest level in more than two years as rising employment and share prices buoyed sentiment after the central bank raised interest rates last week. The sentiment index gained 1.7 percent to 121.4 points in October, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Oct. 5 and Oct. 11 and released today in Sydney. A surge in consumer confidence since May, which has driven up retail sales, home building and mortgage lending, prompted central bank Governor Glenn Stevens to raise the benchmark lending rate on Oct. 6 by a quarter percentage point to 3.25 percent and signal more increases. An Oct. 8 report showing the nation’s jobless rate unexpectedly fell as companies hired full- time workers boosted confidence, Westpac said. “This rise is significant since the survey follows the Reserve Bank’s decision,” said Bill Evans , chief economist at Westpac Bank in Sydney. It also mirrors the last “tightening cycle, which began in May 2002,” and resulted in “sentiment being resilient to rises while rates remained very low. “It seems unlikely that the next quarter-point increase in the mortgage rate in November will have any marked impact on sentiment.” The Australian dollar rose to 90.74 U.S. cents at 11:13 a.m. in Sydney from 90.57 cents just before the report was released. The two-year government bond yield slipped 1 basis point to 4.56 percent. A basis point is 0.01 percentage point. Stocks Gain Australia’s benchmark S&P/ASX 200 Index of stocks extended gains, and was up 0.3 percent to 4,798 as at 10:49 a.m. in Sydney. It has surged 29 percent this year. Discount electronics retailer JB Hi-Fi Ltd. rose 1.2 percent to A$18.73, extending its rally this year to 93 percent. Today’s report also supports Governor Stevens’ view that Australia’s economic growth will return to its trend pace of around 3 percent next year, boosted by A$42 billion ($38 billion) in government infrastructure spending and cash handouts to households. “The board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” Stevens said on Oct. 6 after becoming the first Group of 20 central banker to raise interest rates. A gauge of consumer sentiment on how the economy is faring now rose to the highest level since the Westpac survey was first produced in 1975. Retail Sales Recent reports show retail sales climbed 0.9 percent in August from July and approvals to build private houses increased 3.1 percent, the eighth consecutive month of gains. Bank lending rose 0.1 percent and loans to consumers buying houses jumped 0.6 percent. JB Hi-Fi Ltd. today affirmed its forecast for annual sales of A$2.8 billion ($2.6 billion) after growth from stores open at least a year accelerated. “While the economic outlook remains unclear, we are encouraged by recent signs the Australian economy and consumers are feeling more confident than this time last year,” Chief Executive Officer Richard Uechtritz told JB Hi-Fi’s annual general meeting in Melbourne. Investors have a 100 percent expectation Stevens will raise the overnight cash rate target on Nov. 3 by another quarter point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10 a.m. Signs that Australia’s economy, which skirted the global recession, is strengthening include a report published on Oct. 8 showing the jobless rate fell in September for the first time in five months as employment unexpectedly surged. Economic Outlook “The resilience of the labor market has also been buoying sentiment,” Evans said. The jobless rate’s drop last month to 5.7 percent from 5.8 percent “strengthened householders’ convictions that their jobs are safe.” While confidence about the outlook for economic conditions over the next 12 months rose 5.7 percent, expectations on the five-year outlook dropped 2.6 percent, today’s report showed. A measure of consumer confidence on whether now is a good time to purchase a house slipped 11 percent, the lowest level since November 2008. “This raises some doubt about the extent to which the upbeat mood feeds through to actual spending,” Evans said. “Being optimistic about the future but still somewhat constrained financially may mean consumers remain more cautious.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia’s `Downtrodden’ Banks Lead Hiring Gain as Financial Crisis Eases

October 8, 2009

By Jacob Greber Oct. 9 (Bloomberg) — Australian banks, among companies that fired the most workers at the height of the global financial crisis, are leading a charge to rehire as the economy strengthens. A government report yesterday showed the nation’s jobless rate fell for the first time in five months as employers added the largest number of workers in almost two years, mostly in the financial hubs of Sydney and Melbourne. “The sectors that were downtrodden through the global financial crisis are now those coming back,” said Savanth Sebastian , an economist at Commonwealth Bank of Australia in Sydney. “That includes financial services, investment banking, retail services, human resources and clerical duties.” Rising employment and signs the jobless rate has peaked are among reasons Glenn Stevens this week became the first Group of 20 central banker to raise interest rates. Stevens said economic growth in Australia, which skirted the global recession, will accelerate, driven by A$22 billion ($20 billion) in government spending and demand for commodities from China, the nation’s second-largest export market. The number of people employed unexpectedly jumped 40,600 last month, pushing the jobless rate down to 5.7 percent from 5.8 percent. All 20 economists surveyed by Bloomberg forecast the rate would remain unchanged or climb. “Banks are hiring again; we’ve seen over the last three months very strong demand for finance people,” Andrew Brushfield , director of recruitment firm Robert Half Australia in Sydney, said in an interview yesterday. Biggest Winners The biggest falls in unemployment were in New South Wales and Victoria, the nation’s largest states. The jobless rate in New South Wales tumbled to 5.6 percent, the lowest level in eight months, from 6.1 percent. Victoria’s rate slid to the same level from 6.2 percent. By contrast, unemployment rose in the mineral-rich states of Queensland and Western Australia. Rio Tinto Group, the world’s third-biggest mining company with iron ore operations in Western Australia’s Pilbara region and coal mines in Queensland, in December announced plans to eliminate 14,000 jobs. BHP Billiton Ltd. , the world’s largest mining company, cut 1,800 jobs when it shuttered the Ravensthorpe nickel mine in Western Australia and sold its Yabulu refinery in Queensland. More Vacancies An index of advertisements for job vacancies published by recruitment agency Olivier Group this week showed financial services and banking vacancies grew 2.8 percent in August. “Now that we’ve come out the end of this downturn, employers are scrambling to rehire staff,” said Commonwealth’s Sebastian. Bank of America last month said it hired more than 35 people in the previous three months. Japan-based Nomura Holdings Inc. in August appointed three investment bankers. Citigroup Inc. also hired four bankers to expand its Sydney- based global markets business. UBS AG this week said it plans to hire 40 wealth advisors in Australia after inflows at the local unit resumed this year. “The business has seen a marked change from where it was six months ago,” Clark Morgan , chief executive officer of the Australian wealth-management business, said in an interview. The hiring contrasts with a surge in sackings earlier this year and late 2008, when the finance-industry workforce shrank for the first time in 13 years. Shed Jobs Financial institutions shed 9,185 jobs since the start of last year, according to the Finance Sector Union of Australia. By contrast, there now “certainly has been a severe reduction in the number of jobs being cut,” Leanne Shingles, a spokeswoman for the union in Melbourne, said in an interview yesterday. In March, Commonwealth Bank, the nation’s second largest, cited the “sharply contracting economy” for its decision to fire about 400 people from its BankWest unit. Now, the Sydney-based lender “remains fairly steady in terms of overall recruitment, but we have looked at building our institutional banking team,” said spokesman Steve Batten . A quarterly survey of employers published yesterday by recruitment firm Hays Group Plc found “a general, or in some cases acute, level of skills shortages” for accountants, financial analysts, mortgage brokers, insurance underwriters and risk officers. Engineers, infrastructure project managers, human resources staff and retail workers are also in short supply. Focusing on ‘Upturn’ “Over the year, pockets of demand certainly existed, but they were often centered upon managing the effects of the financial crisis,” said Hays Managing Director Nigel Heap. “Now, employers are focusing on the expected upturn in business activity.” Australia’s economy has outperformed most other developed nations, expanding 1 percent in the first half of the year. Stevens, who raised the overnight cash rate target to 3.25 percent from 3 percent on Oct. 6, says growth will accelerate close to the “trend” rate of around 3 percent next year. The International Monetary Fund predicts Australia’s gross domestic product will rise 2 percent in 2010. By contrast, the U.S. economy will expand 1.5 percent next year, Japan by 1.7 percent and the euro region by just 0.3 percent, the fund said last week. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australian Firms Unexpectedly Add Jobs, Supporting Case for Higher Rates

October 7, 2009

By Jacob Greber

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Australia’s Stevens Backs History of Being First, Right on Interest Rates

October 7, 2009

By Jacob Greber and Rebecca Keenan Oct. 7 (Bloomberg) — Australian central bank Governor Glenn Stevens has a reputation for doing the unexpected — and getting it right. His gamble yesterday, when he became the first central bank chief among the Group of 20 nations to raise interest rates since the height of the global financial crisis, will make or break that reputation. Get it right and Australia will extend its 18 years of economic growth. Get it wrong and he could nip the nation’s rebound in the bud. “Stevens is doing what he thinks is the right thing for the broader community — if that means flying in the face of convention, he’ll do it,” said Warren Hogan , chief economist at Australia & New Zealand Banking Group Ltd. in Sydney. “If Australia receives another shock from the global economy, this will look like a misguided policy move.” Stevens , a 51-year-old amateur pilot who was promoted to governor from his role as deputy in 2006, is not new to controversy. In 2007, he raised interest rates during an election campaign, destroying then Prime Minister John Howard’s boast about his government’s record of keeping borrowing costs low. In April last year, he was criticized by politicians, retailers, one of his predecessors and newspapers for raising interest rates too far too fast and risking a recession. Instead, Australia was one of the few nations to skirt the global recession, prompting former Reserve Bank Governor Bernie Fraser in June to reverse his earlier criticism of Stevens, telling Bloomberg: “Glenn Stevens has been first class. When we look at what has happened around the world, he has proved to be one of its best central bank governors.” Murdoch Newspaper Mellows Even Rupert Murdoch’s Sydney tabloid the Daily Telegraph has toned down its criticism. On April 5 last year, it led its front page with a picture of Stevens and the headline: “Is This The Most Useless Man in Australia” after he raised rates to a 12-year high of 7.25 percent. Today, it was more circumspect, saying in an editorial of yesterday’s decision that Stevens “could well be right, in which case the decision to increase interest rates will be seen as practically clairvoyant.” Demand for Australian minerals from China, the nation’s second-largest trading partner in 2008, plus a surge in consumer and business confidence, will help economic growth accelerate in coming months, the central bank says. Governor Stevens said yesterday that gross domestic product will expand “close to trend” next year, which economists including Citigroup Inc.’s Josh Williamson say is currently between 2.75 percent and 3 percent. By contrast, the International Monetary Fund forecast last week that the U.S. economy will expand 1.5 percent, Japan by 1.7 percent and the euro region by 0.3 percent. November Increase Surging domestic growth will prompt Stevens to raise rates by another quarter percentage point on Nov. 2, according to 21 of 23 economists surveyed by Bloomberg News today. The central bank’s track record also suggests Stevens may raise rates by more than a quarter point if further evidence emerges of an economic rebound or faster gains in property prices. The governor slashed the benchmark rate by one percentage point in October 2008 when the global credit crisis was at its worst, the biggest cut since 1992. “Stevens was one of the first to move rates by a sizeable amount last October and others followed” around the world, said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney, who was the only analyst among 20 surveyed by Bloomberg to tip yesterday’s move. “He can take a lot of credit for those aggressive moves” as they helped the economy shrug off the global recession. Australia’s central bank also moved ahead of other central banks in May 2002, beginning a tightening cycle when economic growth was still slowing after the Sept. 11, 2001, terrorist attacks. ‘Moved Too Soon’ Investors have a 66 percent expectation Stevens will raise borrowing costs by a quarter point next month, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:58 a.m. Australia’s currency hit a 14-month high after yesterday’s rate increase, taking its gain this year against the U.S. dollar to 27 percent. The nation’s benchmark S&P/ASX 200 stock index is headed for its steepest annual gain since 1993, beating equity gauges for the U.S. and the world. Still, some say Stevens moved too soon. “We would have liked to have seen the Reserve Bank hold off on this decision” for a few more months, said Margy Osmond , chief executive officer of the Australian National Retailers Association. “Even sniffs of an interest-rate increase makes a difference in terms of people’s attitudes towards spending.” Cash Handouts Spending by consumers, whose confidence jumped to a two- year high this month, has been buoyed by the government’s decision to distribute A$20 billion ($18 billion) in cash to households following last year’s collapse of Lehman Brothers Holdings Inc. Rate gains may prompt shoppers to cut back. “That is a real danger” if Stevens raises rates “too quickly or by too much,” said ANZ Bank’s Hogan. “Australia is still an economy where economic growth is below trend, inflation is falling and expansionary policy is still warranted.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Raises Interest Rates in First G-20 Increase Since Crisis Began

October 6, 2009

By Jacob Greber Oct. 6 (Bloomberg) — Australia’s central bank unexpectedly raised its benchmark interest rate from a 49-year low and signaled further increases in coming months amid signs the economy is strengthening. Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.25 percent from 3 percent in Sydney today. Only one of 20 economists surveyed by Bloomberg News forecast today’s move. The rest predicted no change. The local currency jumped to the highest level in 14 months as Australia became the first Group of 20 nation to boost borrowing costs since the start of the global financial crisis more than a year ago. Rising job vacancies, retail sales and house prices, plus surging business and consumer confidence support Stevens’ view that the “basis for such a low interest rate setting has now passed.” “It’s quite a pre-emptive move,” said Su-Lin Ong , senior economist at RBC Capital Markets Ltd. in Sydney. “They’re very comfortable the globe is returning to firmer growth, particularly Australia’s key trading partners in Asia. “There are a few more hikes ahead.” The Australian dollar rose to 88.53 U.S. cents at 5:47 p.m. in Sydney from 87.62 cents just before the decision was announced. The two-year government bond yield gained 4 basis points to 4.39 percent. A basis point is 0.01 percentage point. Governor Stevens, who cut the benchmark lending rate by a record 4.25 percentage points between September 2008 and April to cushion Australia against fallout from the global credit squeeze, said today that the economy is likely to expand “close to trend over the year ahead,” and inflation will remain near the bank’s target range of between 2 percent and 3 percent. Risk Has Passed “The risk of serious economic contraction” in Australia has passed, Stevens said in a statement. “The board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” he added. “This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.” Today’s increase means households with an average-sized mortgage of A$250,000 ($221,000) will pay an extra A$40 a month in repayments. Jane Counsel, a spokeswoman for Westpac Banking Corp., Steve Batten , a spokesman for Commonwealth Bank of Australia, and Luisa Ford, a spokeswoman for National Australia Bank Ltd., said the banks are currently reviewing their interest-rate settings. Australia and New Zealand Banking Group Ltd. is also reviewing its rates, spokesman Kevin Foley said. Global Rates Speculation that Stevens would move faster than policy makers in the U.S., Europe and Japan to raise borrowing costs has helped stoke this year’s 26 percent gain in the nation’s currency. Indonesia’s central bank kept interest rates unchanged for a second month yesterday and the European Central Bank will leave its benchmark rate at a record low of 1 percent on Oct. 8, according to analysts surveyed by Bloomberg. The U.S. Federal Reserve left the rate for overnight loans between banks at a record low of between zero and 0.25 percent on Sept. 24. “The Reserve Bank has flagged there may be more to come,” Treasurer Wayne Swan told reporters in Canberra today. There is “no doubt” Australia’s economy is recovering. Reports last week showed retail sales, approvals to build private homes, bank mortgage lending and property prices all jumped in August. Advertisements for job vacancies rose in September for a second straight month, gaining 4.4 percent. ‘Consumer Shock’ A report on Oct. 8 will show the unemployment rate rose to 6 percent last month from 5.8 percent, according to the median estimate of 20 economists surveyed by Bloomberg. By contrast, Europe’s jobless rate climbed in August to a 10-year high of 9.6 percent, and reached 9.7 percent in the U.S., the highest level since 1983. “Overall, growth through 2010 looks likely to be close to trend,” Governor Stevens said. “Unemployment has not risen as far as had been expected.” The bank’s decision will be “a shock for consumers in particular and those first-home buyers who have been borrowing pretty big,” said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney, who forecast today’s move. “I think the Reserve Bank will move quite slowly” on future moves with quarter-point increases “every couple of months or so.” Consumer spending, stoked by A$20 billion in government cash handouts to households, helped fuel a 1 percent expansion in Australia’s gross domestic product in the first half of this year. Stock, House Prices The government is also boosting domestic demand by spending an extra A$22 billion on roads, railways, ports and schools. There are increasing signs the stimulus is starting to drive up asset prices. The nation’s benchmark S&P/ASX 200 index of stocks has surged more than 20 percent this year, and a report published on Sept. 30 by property monitoring company RP Data-Rismark showed house prices climbed 7.9 percent in the first eight months of this year. “Housing credit growth has been solid and dwelling prices have risen appreciably over the past six months,” Stevens said today. The Reserve Bank scrapped its forecast in August for the economy to contract this year, instead predicting GDP will rise 0.5 percent. The bank expects growth will accelerate to 2.25 percent in 2010 and 3.75 percent in 2011. “There’s a risk they’ve gone too early,” said Prasad Patkar , who helps manage about $1.2 billion at Platypus Asset Management in Sydney. “The recovery may not be all that well entrenched and yet they’re starting to unwind the stimulus.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australian Employers Cut 27,100 Jobs, More Than Estimates; Currency Drops

September 9, 2009

By Jacob Greber

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Australia’s Retail Sales Survive Global Slump, May Suffer During Recovery

September 8, 2009

By Jacob Greber Sept. 9 (Bloomberg) — Australian retail sales growth will slump as a boost from government cash handouts to consumers wanes and rising interest rates erode disposable incomes, research-company Access Economics said. Retail sales growth, adjusted to remove the effect of inflation, will slow to 0.8 percent in the 12 months through June 2011 from 1 percent in the current fiscal year, Access Director David Rumbens said in a report released in Canberra today. Sales will gain 3.7 percent in 2011-12. Household spending surged 4.1 percent in the year to June 2009 at retailers including Harvey Norman Holdings Ltd., Australia’s largest furniture and electrical seller, stoking the fastest economic expansion last quarter in more than a year. The government has distributed more than A$12 billion ($10.2 billion) in cash to consumers this year and the central bank has slashed borrowing costs to a half-century low. “We have spent our way through the most turbulent period in the global economy in 60 years,” helping retailers survive “the bust in rather spectacular fashion,” Rumbens said in the report. “Surviving the recovery may prove to be a trickier proposition,” he added. “The cash handouts are beginning to fade, interest rates are more likely to rise than be lowered, and the labor market is still set to weaken.” Retail sales unexpectedly dropped 1.4 percent in June, the first decline in four months, a report showed on Aug. 4. Sales probably rose 0.5 percent in July, according to the median estimate of 20 economists surveyed by Bloomberg News. The figures will be released at 11:30 a.m. in Sydney today. Retail Profits Mark McInnes , chief executive officer of Australia’s second-biggest department-store chain, David Jones Ltd., said last month that while sales in the three months through June were “pleasing,” there is “still some uncertainty in relation to the future outlook.” Growth in profit after tax for the year ending July 2010 will be between zero and 5 percent, Sydney-based David Jones said on Aug. 5. Since the collapse of Lehman Brothers Holdings Inc. almost a year ago, the government has handed out more than A$20 billion to households, cut taxes and is spending another A$22 billion upgrading roads, ports, railways and schools. The spending helped boost gross domestic product by 0.6 percent in the three months through June from the previous quarter, when it gained 0.4 percent, a report showed last week. Consumer Confidence “To what extent, if at all, retail spending will moderate further over the coming months as the cash handout effect fades is the key question,” said Rumbens. “You can’t keep spending a temporary windfall, but at the same time the underlying economic environment is certainly much brighter now than six months ago.” Consumer confidence has climbed to the highest level in almost two years. Westpac Banking Corp. will release this month’s consumer sentiment survey results at 11 a.m. in Sydney today. Household disposable income will probably fall 2.7 percent in the 12 months through June 2010 before rising 1.7 percent the following year, today’s Access report says. Incomes rose by an annual average of 3.2 percent for the past five fiscal years. While unemployment is rising less than forecast by the government, “the average number of hours worked by employees is falling, which will cut into underlying incomes,” Rumbens said. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia’s Trade Deficit Widens as Imports of Oil, Consumer Goods Climb

September 2, 2009

By Jacob Greber

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Australian Interest-Rate Increase Looms Amid Accelerating Economic Growth

September 2, 2009

By Jacob Greber Sept. 3 (Bloomberg) — Pressure is mounting on central bank Governor Glenn Stevens to raise interest rates from a half- century low as soon as next month after a report yesterday showed the economy strengthened on surging consumer spending. Investors have a more than 100 percent expectation Stevens will boost borrowing costs in November by a quarter point to 3.25 percent, according to interbank futures on the Sydney Futures Exchange at 3:14 p.m. yesterday. There is also a 36 percent probability of a move on Oct. 6, the futures show. Australia’s economy unexpectedly accelerated in the second quarter at the fastest pace in more than a year as A$20 billion ($16.6 billion) of government cash handouts boosted spending at retailers such as Harvey Norman Holdings Ltd. Stevens may become one of the first policy makers in a developed economy to begin raising borrowing costs since the collapse of Lehman Brothers Holdings Inc. almost a year ago. “A 3 percent cash rate is inconsistent with an economy growing this fast,” said Matthew Johnson , interest-rate strategist at UBS AG in Sydney. “If the central bank were meeting now, they would raise rates.” “There’s too much momentum going into the second half of the year, which makes it unlikely the economy will slow,” he added. “Inflation pressures are only going to intensify.” Gross domestic product rose 0.6 percent in the second quarter from the previous three months when it grew 0.4 percent, three times faster than the 0.2 percent median estimate of 20 economists surveyed by Bloomberg News. Interest-Rate Swaps Traders forecast the central bank’s overnight cash rate target will be 182 basis points higher in 12 months, according to a Credit Suisse Group AG index based on interest-rate swaps at 3:57 p.m. in Sydney yesterday. Prior to yesterday’s GDP report, they tipped 171 basis points of gains. By contrast, the U.S. Federal Reserve is tipped to raise borrowing costs by 81 basis points in the next year and the European Central Bank by 66 basis points. “Something bad now needs to happen to stop the Reserve Bank from fast-tracking its first hike to October,” said Rory Robertson , an economist at Macquarie Group Ltd. in Sydney. “The Australian economy grew 1 percent in the first half of the year, confounding many forecasts it would shrink.” The Reserve Bank scrapped its forecast last month for the economy to contract this year, instead predicting gross domestic product will expand 0.5 percent. The bank expects growth will accelerate to 2.25 percent in 2010 and 3.75 percent in 2011. Annual Growth Yesterday’s report suggests the bank will be forced to raise its growth forecasts again when it next publishes its quarterly predictions in November, UBS’s Johnson said. The economy grew 0.6 percent from a year earlier, twice the pace forecast by economists, the Bureau of Statistics reported yesterday in Sydney. Analysts had cut their growth forecast on Aug. 31 and Sept. 1 after reports showed a widening current account deficit in the second quarter and a record drop in business inventories. Consumer spending jumped 0.8 percent in the second quarter, the largest gain since the three months through December 2007, adding 0.5 percentage point to GDP, the bureau said. Government spending, which jumped by the same amount and contributed 0.1 percentage point to growth in the second quarter, may accelerate in coming months as Prime Minister Kevin Rudd spends A$22 billion on roads, railways, ports and schools. Stimulus from governments also helped lift Germany out of its worst recession since World War II, a report showed on Aug. 25. Europe’s largest economy grew 0.3 percent from the first quarter following four quarters of contraction. France’s economy, the second-biggest in the euro region, unexpectedly exited a yearlong recession, gaining by the same amount as Germany. ‘Stronger Than Expected’ By contrast, the U.K.’s economy shrank 5.5 percent in the second quarter, the most since records began in 1955, and U.S. GDP dropped 1 percent. Australia’s economy has been “stronger than expected,” Governor Stevens said on Sept. 1 when he kept the overnight cash rate target at a 49-year low of 3 percent for a fifth month. “The likelihood of inflation being persistently below” the bank’s target range of between 2 percent and 3 percent “now looks low,” Stevens said. Still, there are some signs economic growth may cool in the third quarter. Retail sales fell in June for the first time in four months, exports and inventories slumped in the second quarter and bank lending to businesses shrank for a sixth month in July. “Prime Minister Kevin Rudd’s fingerprints” are all over the first-half rise in GDP, said Annette Beacher , a senior economist at TD Securities Ltd. in Singapore. “The bigger test going forward is how the economy copes without the cash handouts and generous fiscal incentives.” Before central bank policy makers meet again in five weeks, figures will be published on home loans, retail sales, unemployment and consumer sentiment. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australian Second-Quarter Economic Growth Unexpectedly Accelerates to 0.6%

September 1, 2009

By Jacob Greber

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Australian Second-Quarter Economic Growth Unexpectedly Accelerates to 0.6%

September 1, 2009

By Jacob Greber

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Australia Economic Growth Unexpectedly Accelerates to 0.6%; Currency Rises

September 1, 2009

By Jacob Greber

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Australia Economic Growth Unexpectedly Accelerates to 0.6%; Currency Rises

September 1, 2009

By Jacob Greber

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Australia Economic Growth Unexpectedly Accelerates to 0.6%; Currency Rises

September 1, 2009

By Jacob Greber

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Rio Tinto Executive Hu May Face Charges in China, Australia’s Smith Says

July 19, 2009

By Jacob Greber July 19 (Bloomberg) — China’s arrest of Rio Tinto Group ’s Stern Hu is related to a criminal probe into iron-ore price talks, not espionage, and the probe may result in a decision to charge the executive, according to Australia’s foreign minister.

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