RBA keeps interest rates on hold at 1.5%

AFP

Australia’s central bank kept interest rates at a record low on Tuesday in the first meeting for newly-minted chief Philip Lowe, amid solid domestic growth and signs that commodity prices have passed their trough.
Australian growth has remained robust despite the economy’s uneven transition away from mining-driven expansion, but a recent run of sluggish inflation figures drove the Reserve Bank of Australia (RBA) to cut rates in May, and then again in August to 1.50 percent.
“The board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” Lowe said in a statement after the monthly RBA board meeting.
The decision to sit on the sidelines was widely tipped by economists, and the Australian dollar drifted slightly lower to 76.67 US cents, from 76.76 US cents, after the statement was
released.
It also reflected Lowe’s comments to a parliamentary hearing last month, where he struck a cautious note about further cuts to rates and added that the central bank was not “nutters” about keeping inflation in a tight range.
Australia, like other economies, is battling low inflation amid weak wages growth, subdued oil prices and tepid global trade.
Inflation rose by one percent year-on-year in April-June, a 17-year low, far below the Reserve Bank’s target of 2.0-3.0 percent. The next CPI (consumer price index) data will be released in late October.
“This was always going to be an interesting meeting as it’s Phil Lowe’s first as the RBA governor,” JP Morgan economist Tom Kennedy said.
“The fact that the board has delivered a statement that is pretty close to what they’ve delivered in the previous six months when they haven’t cut… suggests the message they want to convey is one of consistency and that the way monetary policy will be managed going forward is not going to be significantly different.”
Lowe highlighted elements of softness in the labour market despite the unemployment rate falling to 5.6 percent, its lowest level in almost three years, in August.
He noted that jobs growth was considerably varied across the nation and the increase in full-time positions was subdued even as part-time roles were growing strongly.
The Australian dollar has risen in recent months alongside a rebound in commodity prices after sharp falls, but Lowe warned that an appreciating exchange rate could put pressure on growth in non-resources sectors as the economy rebalances.
Even so, the improvement in commodity prices — including of Australia’s largest export iron ore — has shored up the economy and could boost government revenue as Canberra seeks to rein in its budget deficit.

Australia cracks down on rate riggers

AFP

Manipulating financial benchmarks will become a criminal offence in Australia, the government announced on Tuesday, as the nation’s largest lender defended its huge profits in a grilling by lawmakers over its practices.
Treasurer Scott Morrison said the tough new rules would “ensure that past egregious conduct by the banks in manipulating benchmarks is prevented in the future”.
Criminal penalties, including jail time, could be imposed for manipulation of equity indexes and Treasury Bond Futures settlement prices.
They would also apply to bank bill swap rates (BBSW), which are used to set the price of financial products such as bonds, loans and derivatives.
By providing false information to help set the BBSW, banks could potentially make millions in profits.
Australia’s corporate regulator, like its counterparts in the United States and Britain, has been probing multinational banks over benchmark interest rate-rigging.
Three of the country’s big four lenders — Westpac, ANZ, and National Australia Bank — are facing allegations they manipulated the interbank lending rate between 2010 and 2012. None of them has admitted any wrongdoing.
“This package will ensure our regulatory regime is as modern and secure as any comparable regime found in equivalent foreign jurisdictions, such as the United Kingdom and the European Union,” Morrison said of the new rules, which will come into effect in January 2018.
Criminal acts will include making false or misleading statements or engaging in dishonest conduct in relation to determining a BBSW or other financial benchmark.
‘Permanent cultural change’
The new regulations came as Commonwealth Bank chief executive Ian Narev Tuesday appeared before a parliamentary committee for a new annual grilling of the country’s big banks designed to make them more accountable.
The heads of Westpac, ANZ and NAB will answer questions by the House of Representatives economics committee later this week.
Narev said he welcomed the chance to “explain our decisions” and would listen carefully to suggestions about areas in which banks could improve.
He defended the bank’s huge net profits and executive pay, at a time when it was under scrutiny over the fees it charges customers and a failure to pass on in full interest rate cuts by the Reserve Bank of Australia.
“You can’t have a prosperous economy unless banks are strong,” he said.
“Our profits are at a level that will enable us to keep the confidence of global funders, who play a critical role in our ability to consistently extend credit.”
The Commonwealth — Australia’s largest bank — posted a record Aus$9.23 billion (US$7.08 billion) annual net profit in the year to June 30.
The “big four” lenders — among the developed world’s most profitable — have been under the microscope in recent years amid allegations of dodgy financial advice, life insurance and mortgage fraud.
Prime Minister Malcolm Turnbull called the hearings in a bid to counter demands by the Labor opposition for a more powerful and wide-ranging national inquiry into the finance industry, spurred by the rate-rigging allegations.
“What we’re setting in place here is ongoing, permanent cultural change and change that will make the banks ensure that they are accountable,” Turnbull said in announcing the hearings in August.
The last major probe into the sector was completed in 2014 and called on domestic banks to hold more capital to address weaknesses that emerged during the 2007-2008 financial crisis.