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08-05-2013, 06:55 AM
TINA - even the most discipline of all central bankers have to yield to pressures of copycat act of other peers
http://www.theaustralian.com.au/business...6637153633
Interest rates fall to record low as RBA fires first shot in currency war
• BY:ADAM CREIGHTON
• From:The Australian
• May 08, 2013 12:00AM
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• Rate cut smacks of austerity
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Rate cut smacks of austerity
Geoff Elliott and Adam Creighton fear the RBA's latest rate cut signals a lack of other options.
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Source: The Australian
THE Reserve Bank is being drawn reluctantly into the global currency wars, surprising economists and financial markets yesterday by cutting rates to a record low largely to take pressure off the stubbornly high Australian dollar
Governor Glenn Stevens pointed to waning economic growth and weaker than expected consumer price inflation in cutting the cash rate to 2.75 per cent yesterday, but dwelt on the prolonged high level of the local currency.
"The level of the exchange rate is playing a bigger part in the Reserve Bank's policy settings," said Matthew Johnson, a currency strategist at UBS, suggesting the high dollar had hobbled the effectiveness of the RBA's series of seven rate cuts since late 2011.
Governor Glenn Stevens said the board had "judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy", which should drag Australia's key lending rate to global financial crisis lows.
RECOMMENDED COVERAGE
RBA gets real but doubts remain
Reserve's case for rate cut is weak
Rate cut smacks of austerity
He said in his accompanying statement that "the exchange rate has been little changed at historically high levels over the past 18 months, which is unusual given the decline in export prices and interest rates during that time", singling out for the first time this year Japan's new extreme quantitative easing and fiscal stimulus, which have depreciated the yen by more than 20 per cent against the Australian dollar since December.
"Easing by other central banks increases the likelihood the Reserve Bank will have to ease policy, too," added Mr Johnson.
The European Central Bank eased its policy rate for the first time in 10 months earlier this month to 0.5 per cent, while the US Federal Reserve has suggested it is in no rush to return policy rates to normal levels.
Rob Henderson, chief markets economist at National Australia Bank who had been expecting a cut in June, said the case for a cut had been "compelling" based on domestic economic conditions including rising unemployment.
"We've seen ongoing weakness in business conditions, and the strong retail figures earlier this year now appear to be consistent with other data," he said.
The announcement at 2.30pm AEST yesterday knocked more than half a US cent off the dollar, which closed at $US1.019, down US0.82c, while the S&P/ASX 200 climbed almost half a per cent on the announcement but still finished the day 12.4 points lower at 5143.7 points.
The RBA's controversial move followed calls from Westpac chief executive Gail Kelly, who in The Australian yesterday suggested weak consumer confidence and the high dollar should be enough to convince the Reserve to cut.
CommSec chief economist Craig James said "with the Aussie dollar still high the Reserve Bank embraced the new mantra of global central banks -- 'do whatever it takes' to lift economic growth".
Wayne Swan said he was pleased that all the major banks -- except ANZ, which has a strict rate-setting timetable -- had reacted quickly to pass the 25-basis-point reduction on in full to mortgage holders.
The Treasurer's opposition counterpart, Joe Hockey, said the record low rate settings reflected badly on the government's economic management.
"The government's budget is in chaos, the Reserve Bank is now in uncharted territory and yet Wayne Swan says Australia is doing well," Mr Hockey said.
Mr Swan said it was "utterly irresponsible" to suggest that because the cash rate was now below GFC levels it reflected a poorly performing economy.
Nationals Senate leader Barnaby Joyce welcomed the cut in rates and the fall in the dollar, pointing to falling cattle prices
"We manufacture a lot more than cars in this country and the importance of our rural sector is often overlooked," Senator Joyce said.
"Other countries are manipulating their currencies but we've been standing by."
Mr Stevens conceded that inflation had been lower than expected, and would be even lower were it not for the impact of the carbon price.
Although the Reserve Bank has now cut interest rates seven times by a total of 200 basis points since late 2011, Australia's official cash rate remains far in excess of policy rates near zero in other advanced economies.
Markets yesterday afternoon were pricing in a 36 per cent chance of another quarter-point rate cut next month. "My guess is they'll sit on their hands for a while to see what asset prices do," Mr Henderson said.
Mr James said the RBA was taking a calculated risk, that "this is a new environment where rate cuts don't spark spending and borrowing booms or higher inflation".
Bank shares were sold off despite the rate cut, surprising brokers who expected that a cut would make them more attractive because of their high yield.
http://www.theaustralian.com.au/business...6637153633
Interest rates fall to record low as RBA fires first shot in currency war
• BY:ADAM CREIGHTON
• From:The Australian
• May 08, 2013 12:00AM
• Increase Text Size
• Decrease Text Size
•
•
• Rate cut smacks of austerity
• japan
Rate cut smacks of austerity
Geoff Elliott and Adam Creighton fear the RBA's latest rate cut signals a lack of other options.
Play
0:00 / 4:27
Scrubber
mute
Share
Fullscreen
Source: The Australian
THE Reserve Bank is being drawn reluctantly into the global currency wars, surprising economists and financial markets yesterday by cutting rates to a record low largely to take pressure off the stubbornly high Australian dollar
Governor Glenn Stevens pointed to waning economic growth and weaker than expected consumer price inflation in cutting the cash rate to 2.75 per cent yesterday, but dwelt on the prolonged high level of the local currency.
"The level of the exchange rate is playing a bigger part in the Reserve Bank's policy settings," said Matthew Johnson, a currency strategist at UBS, suggesting the high dollar had hobbled the effectiveness of the RBA's series of seven rate cuts since late 2011.
Governor Glenn Stevens said the board had "judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy", which should drag Australia's key lending rate to global financial crisis lows.
RECOMMENDED COVERAGE
RBA gets real but doubts remain
Reserve's case for rate cut is weak
Rate cut smacks of austerity
He said in his accompanying statement that "the exchange rate has been little changed at historically high levels over the past 18 months, which is unusual given the decline in export prices and interest rates during that time", singling out for the first time this year Japan's new extreme quantitative easing and fiscal stimulus, which have depreciated the yen by more than 20 per cent against the Australian dollar since December.
"Easing by other central banks increases the likelihood the Reserve Bank will have to ease policy, too," added Mr Johnson.
The European Central Bank eased its policy rate for the first time in 10 months earlier this month to 0.5 per cent, while the US Federal Reserve has suggested it is in no rush to return policy rates to normal levels.
Rob Henderson, chief markets economist at National Australia Bank who had been expecting a cut in June, said the case for a cut had been "compelling" based on domestic economic conditions including rising unemployment.
"We've seen ongoing weakness in business conditions, and the strong retail figures earlier this year now appear to be consistent with other data," he said.
The announcement at 2.30pm AEST yesterday knocked more than half a US cent off the dollar, which closed at $US1.019, down US0.82c, while the S&P/ASX 200 climbed almost half a per cent on the announcement but still finished the day 12.4 points lower at 5143.7 points.
The RBA's controversial move followed calls from Westpac chief executive Gail Kelly, who in The Australian yesterday suggested weak consumer confidence and the high dollar should be enough to convince the Reserve to cut.
CommSec chief economist Craig James said "with the Aussie dollar still high the Reserve Bank embraced the new mantra of global central banks -- 'do whatever it takes' to lift economic growth".
Wayne Swan said he was pleased that all the major banks -- except ANZ, which has a strict rate-setting timetable -- had reacted quickly to pass the 25-basis-point reduction on in full to mortgage holders.
The Treasurer's opposition counterpart, Joe Hockey, said the record low rate settings reflected badly on the government's economic management.
"The government's budget is in chaos, the Reserve Bank is now in uncharted territory and yet Wayne Swan says Australia is doing well," Mr Hockey said.
Mr Swan said it was "utterly irresponsible" to suggest that because the cash rate was now below GFC levels it reflected a poorly performing economy.
Nationals Senate leader Barnaby Joyce welcomed the cut in rates and the fall in the dollar, pointing to falling cattle prices
"We manufacture a lot more than cars in this country and the importance of our rural sector is often overlooked," Senator Joyce said.
"Other countries are manipulating their currencies but we've been standing by."
Mr Stevens conceded that inflation had been lower than expected, and would be even lower were it not for the impact of the carbon price.
Although the Reserve Bank has now cut interest rates seven times by a total of 200 basis points since late 2011, Australia's official cash rate remains far in excess of policy rates near zero in other advanced economies.
Markets yesterday afternoon were pricing in a 36 per cent chance of another quarter-point rate cut next month. "My guess is they'll sit on their hands for a while to see what asset prices do," Mr Henderson said.
Mr James said the RBA was taking a calculated risk, that "this is a new environment where rate cuts don't spark spending and borrowing booms or higher inflation".
Bank shares were sold off despite the rate cut, surprising brokers who expected that a cut would make them more attractive because of their high yield.