stonelover wrote:Judd,

I have wondered about the "prudent" and the self funded that rely on a healthy Interest Rate to give
them that essential boost. There are always 2 sides to the argument.

My view was that Business and Consumer Confidence was suffering, big-time. Contracting.
Also that the ripple effect across all of Aus (except the 1 in 50 Resources people) was going to be dramatic and long felt.
I also hold the view that Aus can strengthen itself over the long haul if it can keep feeding Business/Consumer with some oxygen.
Whilst there are billions of dollars worth of 'mining-related' projects on the table for years to come, so much of it is roads, bridges, tunnels, mining-camps, airstrips and all relying on positive projections of Asian productions.
There did not seem to be any fall-back position for Aus should Asian eceonomies start to contract.

Interest rates for ANZ Banking Group's home and business loans have remained on hold after the bank's inaugural monthly rate review meeting.

The bank's pricing committee made the decision on Friday at what will become a regular monthly event in an attempt to separate ANZ's decisions on rates from those made by the Reserve Bank of Australia (RBA).

ANZ's chief executive for local operations Philip Chronican said it was prudent to leave the bank's variable interest rates on hold given its competitive position, the subdued state of credit demand and the state of Australia's economy. But he flagged ANZ's higher funding costs would remain so in the near term, raising the possibility that rates could rise in the future. "In coming to our decision this month we wanted to be clear that these higher interest rates we are now paying our depositors and the elevated prices we are required to pay for wholesale funds are going to be sustained given the volatility we saw late last year," Mr Chronican said.

ANZ is no longer announcing its interest rate movements in lock-step with the RBA. The move is designed to change the public's perception that ANZ's loan rates, and cost of funds, are tied to the RBA's official cash rate.

ANZ will announce whether it is lifting or cutting interest rates on the second Friday of each month. Any changes to its variable interest rates will come into effect one week after its monthly announcement. "We want the process of setting interest rates for our customers to be simple and transparent," Mr Chronican said.

His comments came three days after ANZ raised one billion euros ($A1.24 billion) from an issue of covered bonds into the European debt market, paying about 130 basis points over the mid-swap rate to secure the sale to investors. Covered bonds are debt securities backed by cash flows from mortgages or public sector loans.

Banks are paying higher spreads to ensure they secure funds from volatile offshore credit markets, Bell Potter Securities' analyst TS Lim said. "They're accepting whatever price there is in the market - they're trading off price for certainty."

Standard variable rates on home loans currently stand at 7.36 per cent at Westpac, 7.31 per cent at CBA, 7.30 per cent at ANZ, and 7.22 per cent at National Australia Bank. ANZ currently charges small businesses a variable reference rate of 10.74 per cent.

RBA Deputy Governor Speaks: Should high A$ result in unemployment rise expect further cuts

The new Deputy Governor of the Reserve Bank, Philip Lowe, today spoke on the topic "The Changing Structure of the Australian Economy and Monetary Policy".

While much of the speech covered the familiar ground of the large shift in relative prices for commodities vis a vis manufactured goods and the implications that that has had for surging per capita income and the Australian dollar, the key to the speech was for the RBA to augment the role of the Australian dollar in the consideration of monetary policy.

Specifically, in terms of implications for policy;
- The RBA readily acknowledges that it is having difficultly assessing the full impact of the shift in relative prices and the resulting structural change it is having upon the Australian economy and as such is engaging with business to deepen the RBA's understanding of the structural change impacts.
- The RBA cannot stop this structural change from occurring, monetary policy can only keep the Australian economy "on an even keel" through the adjustment phase.
- The process of structural change requires that the economy is highly flexible in its allocation of resources.
- The RBA does not believe that it is high interest rates that have led to the high A$. Instead the RBA views the current levels of interest and exchange rates as needed to maintain overall economic stability. Rather, the high exchange rate is because Australia has been a major beneficiary of the shift in relative prices.

Our interpretation of the RBA's observations are;
-The RBA is now more attuned to non-linear responses of the real economy for a high exchange rate and appears to be now acknowledging that the impact of the mining investment boom is increasingly a double edged sword.
-Interest rate reductions to assist in the process of structural change in the economy is now an important consideration for policy. The 'making room for the mining investment boom' rhetoric has been dropped by the RBA and consideration is being given for smoothing the harsher realities of the structural adjustment of the Australian economy.
- The RBA has sent a thinly veiled message to governments that it is an economic priority to enhance the flexibility of labour and capital markets to speed the adjustment process.
- The RBA clearly believes the Australian dollar may have overshot economic fundamentals and indeed investment flows from central banks and sovereign wealth funds are having a distortive impact.

The main conclusion of the speech is very clear. Should the unemployment rate rise persistently above the 5.25% level then the RBA could conclude that the expansionary impact of the mining investment boom may be being offset by the contractionary impact of the high Australian dollar.

This speech appears much closer to the position we hold on rates through 2H11. We have been highlighting over the past year the role of reserve diversification flows from predominately Asian central banks and the muting impact upon the transmission mechanism of monetary policy when the A$ does not move in tandem with local economic data points and interest rate changes. With our forecast for the unemployment rate to approach 6% we continue to expect 50 bp of easing by mid-year.

Our very own King, Reserve Bank governor Glenn Stevens, recently said...

"Some sectors of the economy will grow in importance as they invest and employ to take advantage of higher prices. Other sectors will get relatively smaller. Structural adaptation is hard work. Few volunteer for it. But we have little choice but to do it."

Billionaire retailer Solomon Lew obviously disagrees. The Age reports the chairman of retail group Premier Investments (PMV) - owner of brands including Just Jeans, Portmans, Peter Alexander, Dotti and Smiggle - as saying...

"I really believe the RBA has mishandled the mining boom to the great detriment of the non-mining sector, in particular retail…We do need an interest rate cut immediately. I'd be calling on the RBA to cut interest rates by 50 to 75 basis points at the next meeting and I think that the Australian economy is in trouble."

Should we just add him to the increasingly long list of billionaires crying foul? Gerry Harvey, Clive Palmer, Gina Rinehart, Andrew Forrest. If ever proof was needed that money doesn’t bring happiness...