Australian Central Bank Expected To Hold Rates Steady
When the Reserve Bank of Australia meets next week, it is likely to spare the Australian consumer from yet another interest rate hike, however the central bank is more than likely to raise interest rates soon, and do so more than once before the year is out.
Eleven economists polled by the APP news agency all said they believed that the RBA would maintain the cash rate at 4.75 per cent when it meets to decide policy on Tuesday.
Ten out of the eleven economists said they expect the central bank to lift the cash rate to 5.0 per cent during the September quarter.
Seven of the eleven economists polled say they believe there will be at least a couple of rate hikes before 2011 comes to an end, which would mean by the end of the year, the cash rate would stand at 5.25 per cent.
The resources boom is widely expected to raise the economic growth rate to 4 per cent, however such torrid growth produces the risk of higher inflation. The central bank typically uses interest rates as a tool to moderate inflation, which it targets at between two to three per cent.
Earlier in the week, GDP data caught many by surprise, when figures were revealed suggesting that that the economy had actually experienced a contraction for the first time since September 2008, during the height of the global financial crisis.
The contraction was attributed to a large decline in the amount of coal that was exported as a result of mines that were shut down during the flooding that took place over the summer.
James McIntyre economist at Commonwealth Bank says he believes rate hikes will occur in August and November, and that GDP data strengthens the case for mid year tightening by the central bank.
“So we had a supply side disruption, which drove the GDP figures into the red, but the rest of the economy, domestic demand in particular, was very strong,” Mr McIntyre said.
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ASIC Requires Additional Compliance From Credit Ratings Agencies
Market regulator ASIC is requiring that credit ratings agencies operating in the country will now be forced to issue compliance reports which detail their obligations relating to the integrity and quality of their ratings process, and how they are managing any potential conflicts of interest that may exist.
The Australian Securities & Investments Commission on Wednesday released a consultative paper designed to boost the integrity of the financial system by requiring credit ratings agencies to lodge annual compliance reports with it every year. ASIC has given market participants until July 13th to respond to the paper, after which it will begin the process of implementing an annual compliance reporting schedule.
ASIC chairman Greg Medcraft said that credit ratings agencies such as Moody’s and S&P will be forced to detail exactly how they have met the conditions of their license.
“ASIC sees establishing reporting standards, together with setting Australian Financial Services Licence conditions and ongoing industry-wide surveillance, as its core regulatory tools in supervising CRAs,” Mr Medcraft said.
“Reporting by CRAs helps give ASIC, and therefore the broader market, insight into the operations of CRAs and, as such, it gives some degree of reassurance to investors in the integrity of issued credit ratings.”
Ratings agencies are held by many as being responsible for the global financial crisis, after falsely rating some of the most toxic subprime securities with their highest investment rating.
Kevin Rudd who was prime minister in 2009 said back then that the ratings agencies were “hopelessly conflicted” since under their business model, it is the issuer who pays for the rating as opposed to the investor.