The Board of the Reserve Bank meets on February 7 next week. In July last year Westpac forecast that the next easing cycle would

total 100bps beginning near year’s end. Subsequently, the Board decided to ease the overnight cash rate by 25bps in both November and December. Based on current information, we continue to expect a further 50bps of easings in this cycle with the next move at the February 7 meeting and another to follow in May.

The case supporting a rate cut next week is strong. Market pricing is certainly arguing for a move: current pricing puts an 85% probability on a 25bp cut.

Clearly, a key factor used by the Board to justify the decision to cut rates in December hinged around Europe and funding conditions.

The RBA Governor on December 6 noted, "Financial markets have experienced considerable turbulence and financing conditions have become much more difficult".

It is reasonable to argue that financial market conditions have improved since the December meeting. In the Board minutes it was noted, "Australian banks had found long–term debt markets dislocated" and "wholesale debt markets appeared to be closed to many financial institutions".

Bill Evans, Chief Economist

Westpac Bank

ANZ has joined Commonwealth Bank in lifting its interest rates 39 basis points, more than the Reserve Bank’s 25 basis point rate rise.

The ANZ’s standard variable rates is now 7.80 per cent.

CommBank on the other hand has fuelled intense anger from borrowers due by increasing its standard variable rate by 45 basis points, nearly twice the RBA’s official rate increase.

Westpac and the National Australia Bank have yet to announce their new lending rates. The four major banks had foreshadowed additional rate increases, citing rising funding costs on global markets.  The ANZ puts the large increase down to “intense competition for deposits and high wholesale funding costs is very real and has continued to increase the average cost of lending”.

Source: The Age

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Public pressure could be behind a decision by three of Australia’s big banks to delay rate rises in line with the Reserve Bank of Australia (RBA) official 0.25 percent hike.

“It’s certainly a little unusual that three of the major four banks haven’t announced their interest rate movements by this stage, but it’s not unheard of. Clearly, the political and customer reaction to the Commonwealth Bank’s decision to lift variable rates by 0.45 percent has given them something to think about,” RateCity chief executive Damian Smith said.

He said that the other banks would most likely follow eventually.

“Borrowers should assume that most institutions will lift rates by at least 0.25 percent; we’d be surprised if many followed the Commonwealth’s lead and went as far as 0.45 percent.”

However, Mitchell Watson, an analyst from finance research firm Canstar Cannex said that banks usually make announcement within hours of each other.

“We tend to hear within the first 48 hours what banks will be doing about interest rates,” he told the Sydney Morning Herald.

“Obviously there has been a bit of a stalemate since last Tuesday.”

And it seems that the backlash will continue after the CBA chief executive Sir Ralph Norris told News Limited that the bank’s interest rate hike could mean that some customers could lose their homes.

“Making this decision didn’t come easy. I Have done all I can to try and minimize the impact by making sure we’ve got some good customer assistance programs for those customers that are genuinely in need. That’s all I can do,” he said.

ING Direct is looking to take advantage of the backlash against the big banks by offering $1,000 to customers who switch their mortgage to the small lender.

The foreign-owned bank says anyone who brings their mortgage across to ING Direct and opens an Orange Everyday transaction account before June next year will receive $1,000.

Customers need to register for the offer by the end of November.

“Switching banks should be easier and this $1,000 is an incentive for people to start the process,” ING Direct chief executive Don Koch said in a statement on Tuesday.

“If customers become more mobile, banks will be forced to offer better value and better service.”

ING Direct’s variable home loan interest rates vary from 6.71 per cent to 7.34 per cent, depending on the particular product.

National Australia Bank offers the lowest mortgage rates of the big four banks at 7.24 per cent, followed by ANZ (7.41 per cent), Westpac (7.51 per cent) and Commonwealth Bank (7.81 per cent).

ING Direct began operating in Australia in 1999, and with no branches deals with its customers over the phone or online.

It has more than 1.4 million customers, with $37 billion in mortgages and $22 billion in deposits on its books, it says.

RateCity is part-owned by ninemsn

Story By Alice Uribe, ninemsn Money with AAP: www.ninemsn.com.au

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Auction clearance rates in Australia’s two biggest cities drop to nearly two-year lows after the RBA’s surprise interest rate rise chills demand.

Auction clearance rates in Australia’s two biggest cities dropped to nearly two-year lows over the weekend after the Reserve Bank’s surprise interest rate rise chilled buyers’ demand.
Clearance rates in Melbourne, dropped to 61 per cent from 67 per cent the week before, according to the Real Estate Institute of Victoria (REIV).

In Sydney, they fell to 54.6 per cent from the previous week 57.5 per cent, according to Fairfax-owned Australian Property Monitors (APM).

The slump in Sydney and Melbourne brought clearance rates to their lowest levels since December 2008, according to REIV and APM, when the average standard variable interest rates reached a peak for that cycle of more than 9 per cent.

The RBA shocked home owners and prospective borrowers by lifting the official cash rate to 4.75 per cent from 4.5 per cent last week despite inflation remaining at modest levels.

That move added $46 onto the monthly cost of on a $300,000 mortgage, after earlier rate rises piled on an estimated $300 more in monthly repayments from October 2009 onwards.
“Buyers and sellers are unaware of what direction money policy will be,” REIV spokesman Robert Larocca said. “That sort of uncertainty is not good for the real estate market.”

“We had a clearance rate around 68 per cent for four months now, at the same time the spectre of a rate rise has hung over the market,” said Mr Larocca.

The average variable mortgage rate stands at 7.49 per cent, after Commonwealth Bank lifted their rates nearly double the RBA’s move  -  by 45 basis points  – last week . CommBank’s three major rivals have yet to react.

Home prices have been tracking sideways in recent months, after posting gains of 1 per cent a month through 2009, fuelled by low interest rates and a cash stimulus by the government.  
National city home prices rose just 0.1 per cent, seasonally adjusted, in September, according to RP Data-Rismark, taking the median city home price at $455,000. 

According to the Australian Bureau of Statistics, the weighted average of eight capital cities rose just 0.1 per cent in the three months to the end of September.
While the low clearance rates over the weekend indicate uncertainty in the market, they haven’t dampened volumes of sales.

Next week in Melbourne 920 properties are up for auction, according to the REIV.

On the following two weekends, more than 1000 houses are listed for sale.

The market is not pricing in an interest rate next month when the RBA meets.

Story by Chris Zappone www.smh.com.au

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Three of the nation’s major banks have yet to announce their decisions on lending rates, leaving many homeowners worried whether they face the same fate as Commonwealth Bank (CBA) customers.

CBA jacked up its variable mortgage rate by 45 basis points on Tuesday, well beyond the Reserve Bank’s 25 basis point increase, sparking a storm of protest.

ANZ, National Australia Bank and Westpac have their lending rates under review after the central bank’s first rate increase since May.

Westpac chief executive Gail Kelly, announcing an 84 per cent jump in annual profits to $6.3 billion on Wednesday, said her bank will announce their rate decision in the next few days.

Mrs Kelly said rates decisions were never taken lightly by the bank’s board, which will be little comfort to her customers if they match CBA’s increase, and whose borrowers face around a $90 increase on their monthly loan repayments for an average $300,000 mortgage.

A still fuming Treasurer Wayne Swan said the government will release measures next month to curb the “arrogance” of the banks, including increasing the powers of the competition watchdog, the Australian Competition and Consumer Commission (ACCC).

“Clearly, (the big banks) have behaved in an arrogant fashion and, clearly, what we will do is make the system more competitive, to give more powers to the ACCC and put in place a range of further reforms to keep them honest,” he told reporters in Sydney.

He said this would be “enduring reform”, not like opposition treasury spokesman Joe Hockey’s “thought bubble”, referring to the opposition’s nine-point plan announced last week.

Mr Hockey said Mr Swan’s response to the banks was a “joke”, adding that if the treasurer had been working on his reforms for months he should release them now, rather than waiting another month.

“The government can huff and puff all it wants with the banks but the bottom line is the banks are treating the government with the same contempt as the Australian people are treating the government,” Mr Hockey told reporters in Sydney.

As the debate raged, new data showed home building was still suffering under previous rate increases, and despite the Reserve Bank having been on the sidelines since May.

Building approvals tumbled 6.6 per cent in September and some 30 per cent over the past six months, a trend that is likely to continue following this latest rate increase.

Australian Bureau of Statistics data shows that between October 2009 and May 2010, a period of six rate increases, just 12,143 homes were approved, the smallest number in over a year.

TD Securities strategist Annette Beacher said the Reserve Bank’s “surprise” increase in the cash rate to 4.75 per cent was never about the housing sector, and barely got a mention in governor Glenn Stevens’ post-meeting statement.

“It was always the case that complete withdrawal of monetary and fiscal policy stimulus would dampen the housing cycle into 2010/11, and this housing downturn is unlikely to sway the RBA from hiking another 100 basis points over the next 12 months,” she said.

The shrinkage in housing construction could cushion house prices, as housing supply is again likely to prove to be insufficient to match demand, she said.

Story Colin Brinsden www.smh.com.au © 2010 AAP

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CUP Day punters could have an extra reason to cheer today, with the odds strongly in favour of the Reserve Bank keeping interest rates on hold for a sixth consecutive month.

But any sigh of relief from borrowers could be short-lived, with some pundits predicting that the RBA will still send rates north by Christmas. And analysts are divided over whether Australia’s big banks will be forced to raise rates independently if the RBA chooses to keep its powder dry today.

Nomura’s Victor German said it was clear banks wanted to raise rates, but, from a political point of view, it would now be "very difficult".

He named Commonwealth as the bank most likely to go it alone, but said the chance of an independent rise was "diminishing" with the new Senate inquiry into banking competition.

Southern Cross Equities analyst TS Lim agreed that political pressure made it tougher for banks to raise rates but said increasing funding pressures meant banks were likely to act anyway.

"Once CBA does it the rest will follow," he said.

Futures market betting on the likelihood of an official rise has plummeted in the past week after benign inflation data dampened expectations that the RBA would lift the cash rate to 4.75 per cent.

Market odds last night reflected just 26 per cent chance of a rate hike today, despite new data revealing an uptick in price pressure in October.

Commonwealth Bank chief economist Michael Blythe said a rates pause today would be "probably only a temporary reprieve".

He said economic data in the next month – including critical growth, job and capital spending indicators – could convince the RBA to hike in December.

The TD Securities-Melbourne Institute monthly inflation gauge showed that on an underlying or "trimmed mean" basis – a measure used by the RBA – inflation rose by 0.2 per cent after flat results in August and September.

On a yearly basis, inflation grew at 3.1 per cent – outside the RBA’s target range of 2 to 3 per cent.

Pushing the gauge higher were price rises for car fuel, fruit and vegetables, and insurance services.

Story by Rachel Hewitt – with Peter Taylor www.heraldsun.com.au

The International Monetary Fund (IMF) has warned Australia and its neighbours of the need to raise interest rates and cut government spending because of the economic strength of the region.

It says in its Regional Economic Outlook for Asia and the Pacific released in Jakarta on Thursday that strong economic growth in the area is set to continue as it leads the global recovery. “Strong economic growth is leading to new policy challenges,” it says.

Inflationary pressures are building and the region is set to remain an attractive destination for foreign investment given the sluggish economy recovery in the US and Europe.

Such capital flows could add further to domestic price pressures. “We welcome the steps so far taken by policymakers to control inflation risks … but more now needs to be done given the continued strong growth in the region,” IMF’s director for the region Anoop Singh said.

“A faster withdrawal of the fiscal stimulus put in place during the global financial crisis would also help guard against the risks of overheating.” The warnings come as economists try to second-guess when the Reserve Bank of Australia (RBA) will likely raise interest rates again.  The central bank has indicated that rates will need to rise if the economy grows as it expects.

However, this week’s minutes of its October board meeting have thrown the strength of the Australian dollar into the mix of its policy deliberations, given its soothing impact on inflation.

The September quarter consumer price index is released next Wednesday. There is also a political row brewing over threats by retail banks that they may be forced to raise mortgage rates beyond moves by the central bank because of their increasing funding costs.

The federal opposition had demanded Treasurer Wayne Swan take a stronger stance against the banks. The IMF said economic activity continues to rebound in Australia driven by demand for its commodities that has raised the terms of trade to historically high levels.

“Growth was also boosted by high consumer confidence and tight labour market conditions, which supported private consumption, and public spending on infrastructure,” the Washington-based institution said.

The IMF expects the Australian economy to grow by 3.0 per cent in 2010 and 3.5 per cent in 2011, compared with 1.2 per cent in 2009. It expects private investment in mining and mining exports will take over from public demand as the main driver for growth.

More broadly, the IMF has increased its growth forecast for the region to eight per cent for 2010, nearly one percentage point higher than it forecast in April, led by robust growth in China and India – two of Australia’s leading export destinations.

Regional growth is expected to moderate to a more sustainable pace of 6.8 per cent in 2011. China said on Thursday that its economy grew by 9.6 per cent in the year to the end of September, just beating economists’ forecasts, but down from 10.3 per cent growth in the previous quarter.  Its annual inflation rate accelerated to 3.6 per cent, the fastest pace since October 2008.

China unexpectedly tightened borrowing conditions earlier this week. TD Securities strategist Roland Randall said the Reserve Bank would look at this data more closely than usual, given its own minutes this week indicated that a decision to raise rates was “finely balanced”.

“China data showing that Australia’s most important customer is recovering and not suffering the consequences of weak demand from its own customers reduces downside risks to hiking Australian interest rates sooner rather than later,” he said.

Story source: http://www.australian-real-estate.net.au

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The Reserve Bank surprised many when it decided to leave the cash rate unchanged at 4.5 per cent this month, despite the market pricing in a greater than 70 per cent chance of a rise.

It has now been five consecutive months since the last rate rise in May, which is good news for the property market.

Sydney property activity for spring has been solid with September recording a healthy 66 per cent clearance rate with total sale values up on this time last year driven by a surge in listings.

Almost 2300 properties are listed for auction this month, compared with 1625 for the same period last year.

It seems vendors are taking advantage of the traditionally strong spring selling season combined with the impetus to act now before the next phase of interest rate rises begins and dampens buyer enthusiasm.

It’s no longer clear whether the next move upwards will be in November or if the Reserve Bank is likely to wait until the new year to start raising rates again.

According to the RBA, the average standard variable mortgage rate offered by the banks in September was 7.4 per cent.

Regardless of when interest rates start to move again, most economic forecasters are expecting at least another 1 per cent by the end of next year.

Take into  account comments from the banks about their struggle with increased funding costs, and it would be prudent to expect an additional increase on top of official cash rate movements.

So by the end of 2011, it’s possible that standard variable mortgage rates will be at 8.5 per cent or higher.

So what can mortgage holders do to gain some protection?

Many will already be thinking about potentially fixing part, if not all, of their mortgage.

Up until the last month, there was some uncertainty over the path of official interest rates due to some weak economic data at home and abroad.

This affected future views of interest rates in the market, and these in turn influenced how banks set their
fixed mortgage rates. According to RBA data, fixed-rate mortgages have been at similar levels as the standard variable rate since July, the first time since early 2009.

The latest housing finance figures (August) show the proportion of owner-occupiers taking out fixed rate home loans was less than 4 per cent, and actually fell slightly from July.

That is, more than 96 per cent of new loans in August were variable.

There is always a risk in fixing a mortgage and picking the right time to do so. The last time the proportion of new loans being fixed rose significantly occurred in March 2008, when the standard variable mortgage rate was
9.35 per cent, just shy of the peak four months later.

At this time, 24 per cent of all new loans were fixed, according to the ABS.

Now may be the right time to at least consider the option of fixing a portion of your mortgage.

With further rises on the cards, the opportunity exists to lock in a three-year rate now which may well be below the standard variable rate in a few months.

Anthony Ishac is the general manager for the Fairfax Media-owned Australian Property Monitors.

Federal Treasurer Wayne Swan says banks could not justify raising rates above the official cash rate if the Reserve Bank of Australia increases its rates when it meets on Tuesday.

On September 21, the RBA kept its benchmark cash rate on hold at 4.5 per cent since the most recent increase in May.

The last rise capped off a series of six that began in October last year when cash was at a multi-decade low of 3.0 per cent.

But economists are predicting a rise when the bank meets at 1430 AEDT on Tuesday.

Mr Swan said there were issues on the long-term funding profile of banks but it still didn’t justify hitting customers with higher interest rates than those of the RBA.

"I don’t think there is any justification whatsoever for any bank to move above the official cash rate decision of the Reserve Bank," Mr Swan told ABC Radio.

"Banks are making healthy profits at the moment, their net interest margins are back above what they were before the global financial crisis."

HSBC’s chief economist Paul Bloxham expects the RBA 25 basis points this year, putting the brakes on an economy fuelled by China’s insatiable demand for resources.

Mr Bloxham says that if the central bank does not raise official interest rates at its meeting on Tuesday, it is likely to do so before the end of the year.

Story from ninemsn.com.au

The Minister for Lands, Tony Kelly, confirmed today the new tax would begin on July 1 and had been formulated as a NSW budget measure.

The tax will be levied on the buyer.

Tens of thousands of NSW home buyers a year are set to be hit with a new tax that will cash in on the improving property market and boost state government coffers by an estimated $90 million annually.

Quietly released by the Minister for Lands, Tony Kelly, amid the wash-up of the federal budget, the new land transfer charge will be imposed on the sale of residential and commercial property worth more than $500,000.

The announcement has outraged property groups, which branded it ”just another stamp duty increase”, while the opposition has criticised the timing of its release as ”sneaky”.

Under the proposal, the portion of the sale amount between $500,000 and $1 million will attract a tax rate of 0.2 per cent, before the charge rises to 0.25 per cent for the portion of the sale above $1 million.

The median Sydney house price is about $600,000, which would attract a charge of $200, while the tax on a property sold for $1.2 million would be $1500.

According to figures provided by the Department of Lands, almost 30,000 residential and commercial property sales of between $500,000 and $1 million were settled in the past 12 months. More than 10,000 properties sold for more than $1 million in the same period.

Aaron Gadiel, the chief executive of the developer lobby group Urban Taskforce, said the new charge amounted to a 4.5 per cent increase in stamp duty for the top end of the property market.

He estimated that a developer looking to acquire a $10 million development site for new housing would be hit with an extra cost of $23,000.

Mr Gadiel said that it ”flies in the face” of the recommendations of the recently released Henry tax review, which criticised transfer duties.

”The Henry review said they were unfair; they hit some members of the community harder than others and they could cause economic distortions and reduce business activity,” he said.

The acting NSW executive director of the Property Council of Australia, Glen Byers, said that the tax was introduced ”without consultation, without explanation at a time when the investment climate in NSW is fragile”.

It is understood that legislation for the new tax will not be introduced before the next session of Parliament, which begins next month.

The government is not indicating when the tax might begin, but a spokesman for the Treasurer, Eric Roozendaal, said the revenue forecast to be generated by the tax would be included in the state budget on June 8.

The announcement was labelled ”sneaky” by the Opposition Leader, Barry O’Farrell, because it was buried in a press release which focused on new security measures for land transfer documents.

Mr Kelly’s release suggested part of the tax would be used to fund the security measures.

A spokesman for Mr Kelly said revenue from the charge would flow to the Department of Lands, not the Office of State Revenue, as was the case with stamp duty.

However Mr O’Farrell said: ”This is another attempt under the cover of a federal budget to get some bad news out from the state budget, well away from polling day in Penrith.”

Figures provided by Mr Kelly’s office suggest that the proposed NSW charge is at the lower end when compared with similar charges imposed by other states.

Based on a sale worth $750,000, the spokesman said only Western Australia charged a lower ”registration charge” of $260, compared with $500 proposed in NSW. In Victoria, the figure is $1350, in Queensland it is $1623 and in South Australia it is $4759.

Story by Sean Nicholls www.domain.com.au