Australia Leaves Rate Unchanged for First Time in Seven Months
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By Jacob Greber
March 3 (Bloomberg) -- Australia’s central bank left its benchmark interest rate unchanged today for the first time in seven months amid signs the lowest borrowing costs in four decades may keep the economy out of recession.
Governor Glenn Stevens kept the overnight cash rate target at 3.25 percent in Sydney. Four of 18 economists surveyed by Bloomberg News forecast today’s decision, seven expected a half- point reduction and seven tipped a quarter-point cut.
Stevens lowered the benchmark by four percentage points between September and February to try to stimulate economic growth, which may have stalled in the fourth quarter amid a global recession, according to a Bloomberg survey of economists. The governor said last month that the bank’s rate cuts and government spending will stimulate growth later this year.
“Stevens is ahead of the curve, which he deliberately wanted given the lags involved in monetary policy in the real economy,” Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney, said ahead of today’s decision. He was also reluctant to lower rates further “because of his semi- optimistic view of the Australian economy.”
Stevens last month said Australia’s economy will outperform its global peers because the nation’s financial system is in better shape and monetary policy is working as lenders pass on official rate cuts to households with mortgages.
The deepening global recession and slumping share markets, including a 14 percent decline in Australia’s benchmark S&P/ASX 200 stock index this year, have forced policy makers around the world to slash borrowing costs.
Global Rates
Stocks tumbled worldwide overnight, sending the Dow Jones Industrial Average to its lowest level since 1997 after American International Group Inc. posted the largest corporate loss in U.S. history.
The U.S. Federal Reserve’s benchmark rate is close to zero, the Bank of England’s is the lowest since its creation in 1694 and the European Central Bank will probably trim its main rate on March 5 to 1.5 percent, the lowest level in 10 years of setting policy, according to economists.
China, Australia’s biggest trading partner, said on Feb. 11 that exports fell 17.5 percent in January, the most in almost 13 years. A Feb. 27 report by the U.S. Commerce Department showed the world’s biggest economy shrank at a 6.2 percent annual pace in the fourth quarter. Japan’s economy contracted at the fastest pace since the 1974 oil shock.
The International Monetary Fund may cut its month-old forecast for the global economy to predict a contraction this year, Nicolas Eyzaguirre, director of the fund’s western hemisphere department, said on March 2.
Mortgage Rates
“We cannot realistically expect anything other than weak conditions in the early part of 2009,” Governor Stevens said on Feb. 20. “The effects of the policy adjustments are only just beginning.”
Commercial lenders have passed on more than 375 basis points of the 400 basis points policy makers cut from the benchmark rate between September and February, saving borrowers with an average A$250,000 ($157,000) home loan about A$600 a month. A basis point is 0.01 percentage point.
Australia’s economy probably expanded 0.9 percent in the fourth quarter from a year earlier, according to the median forecast in a Bloomberg survey of 21 economists. The gross domestic product report will be published tomorrow.
The economy may have escaped a contraction in the quarter because of a 3.8 percent surge in retail sales in December, the biggest increase in more than eight years, after the government handed out A$8.9 billion to the elderly and families. Business investment and home lending also gained. Retail sales also rose 0.2 percent in January, a report today showed.
Prime Minister Kevin Rudd last month said he will spend another A$42 billion on cash handouts and on infrastructure to drive economic growth.
Jobs, Profit
The number of people employed in Australia gained 1,200 in January from December, a report showed on Feb. 12. The median forecast of 17 economists was for a drop of 18,000 jobs.
Woolworths Ltd., Australia’s biggest retailer, said last week it expects to hire 7,000 extra workers and reaffirmed its forecast for a rise in annual profit of as much as 12 percent.
Still, there are signs Australia may still succumb to its first recession in two decades this year.
Company profits fell in the fourth quarter for the first time in more than a year as earnings at manufacturers, builders and wholesalers dropped, and inventories slid 1.9 percent, a report showed yesterday.
Waning global demand and a slide in consumer confidence have eroded earnings at companies from lenders such as Australia & New Zealand Banking Group Ltd. to manufacturer Pacific Brands Ltd. and retailer Harvey Norman Holdings Ltd.
ANZ Bank, the nation’s fourth-largest lender, said last week it will cut its dividend by about 25 percent, the first reduction since 1991. Pacific Brands, Australia’s biggest underwear maker, said it will fire 23 percent of its workforce and halt local production. Furniture retailer Harvey Norman said on Feb. 27 that first half-profit slumped 57 percent.
To contact the reporter for this story: Jacob Greber in Sydney at [email protected]
Last Updated: March 2, 2009 22:31 EST
Email | Print | A A A
By Jacob Greber
March 3 (Bloomberg) -- Australia’s central bank left its benchmark interest rate unchanged today for the first time in seven months amid signs the lowest borrowing costs in four decades may keep the economy out of recession.
Governor Glenn Stevens kept the overnight cash rate target at 3.25 percent in Sydney. Four of 18 economists surveyed by Bloomberg News forecast today’s decision, seven expected a half- point reduction and seven tipped a quarter-point cut.
Stevens lowered the benchmark by four percentage points between September and February to try to stimulate economic growth, which may have stalled in the fourth quarter amid a global recession, according to a Bloomberg survey of economists. The governor said last month that the bank’s rate cuts and government spending will stimulate growth later this year.
“Stevens is ahead of the curve, which he deliberately wanted given the lags involved in monetary policy in the real economy,” Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney, said ahead of today’s decision. He was also reluctant to lower rates further “because of his semi- optimistic view of the Australian economy.”
Stevens last month said Australia’s economy will outperform its global peers because the nation’s financial system is in better shape and monetary policy is working as lenders pass on official rate cuts to households with mortgages.
The deepening global recession and slumping share markets, including a 14 percent decline in Australia’s benchmark S&P/ASX 200 stock index this year, have forced policy makers around the world to slash borrowing costs.
Global Rates
Stocks tumbled worldwide overnight, sending the Dow Jones Industrial Average to its lowest level since 1997 after American International Group Inc. posted the largest corporate loss in U.S. history.
The U.S. Federal Reserve’s benchmark rate is close to zero, the Bank of England’s is the lowest since its creation in 1694 and the European Central Bank will probably trim its main rate on March 5 to 1.5 percent, the lowest level in 10 years of setting policy, according to economists.
China, Australia’s biggest trading partner, said on Feb. 11 that exports fell 17.5 percent in January, the most in almost 13 years. A Feb. 27 report by the U.S. Commerce Department showed the world’s biggest economy shrank at a 6.2 percent annual pace in the fourth quarter. Japan’s economy contracted at the fastest pace since the 1974 oil shock.
The International Monetary Fund may cut its month-old forecast for the global economy to predict a contraction this year, Nicolas Eyzaguirre, director of the fund’s western hemisphere department, said on March 2.
Mortgage Rates
“We cannot realistically expect anything other than weak conditions in the early part of 2009,” Governor Stevens said on Feb. 20. “The effects of the policy adjustments are only just beginning.”
Commercial lenders have passed on more than 375 basis points of the 400 basis points policy makers cut from the benchmark rate between September and February, saving borrowers with an average A$250,000 ($157,000) home loan about A$600 a month. A basis point is 0.01 percentage point.
Australia’s economy probably expanded 0.9 percent in the fourth quarter from a year earlier, according to the median forecast in a Bloomberg survey of 21 economists. The gross domestic product report will be published tomorrow.
The economy may have escaped a contraction in the quarter because of a 3.8 percent surge in retail sales in December, the biggest increase in more than eight years, after the government handed out A$8.9 billion to the elderly and families. Business investment and home lending also gained. Retail sales also rose 0.2 percent in January, a report today showed.
Prime Minister Kevin Rudd last month said he will spend another A$42 billion on cash handouts and on infrastructure to drive economic growth.
Jobs, Profit
The number of people employed in Australia gained 1,200 in January from December, a report showed on Feb. 12. The median forecast of 17 economists was for a drop of 18,000 jobs.
Woolworths Ltd., Australia’s biggest retailer, said last week it expects to hire 7,000 extra workers and reaffirmed its forecast for a rise in annual profit of as much as 12 percent.
Still, there are signs Australia may still succumb to its first recession in two decades this year.
Company profits fell in the fourth quarter for the first time in more than a year as earnings at manufacturers, builders and wholesalers dropped, and inventories slid 1.9 percent, a report showed yesterday.
Waning global demand and a slide in consumer confidence have eroded earnings at companies from lenders such as Australia & New Zealand Banking Group Ltd. to manufacturer Pacific Brands Ltd. and retailer Harvey Norman Holdings Ltd.
ANZ Bank, the nation’s fourth-largest lender, said last week it will cut its dividend by about 25 percent, the first reduction since 1991. Pacific Brands, Australia’s biggest underwear maker, said it will fire 23 percent of its workforce and halt local production. Furniture retailer Harvey Norman said on Feb. 27 that first half-profit slumped 57 percent.
To contact the reporter for this story: Jacob Greber in Sydney at [email protected]
Last Updated: March 2, 2009 22:31 EST
