Sydney, Dec 3, 2007 (ABN Newswire) - The Reserve Bank of Australia is not expected to move interest rates at its meeting tomorrow.

The last regular board meeting of the year will no doubt discuss what's happening here, but more importantly the accelerating slide towards a slowdown in the US.

That will be enough to keep the bank's hands off the levers, especially with more and more Us economists tipping a half a per cent cut by the Fed on December 11, which would open the yield gap with Australia's 6.75% cash rate to 2.75%.
Unlike the US local economic data has remained strong but the bank likes to wait several months to see how rate rises work: remember there was a rate rise in August that seems to have slowed housing a touch, something we will be able to judge by the October building approval figures mid week.

The September quarter national accounts will be the dominant story on Wednesday, coming two hours after the RBA rate announcement at 9.30 am.

Economists tip growth in the quarter from around 0.8% to 1.2%. That would produce a growth rate of around 4%--5%, and much higher in the domestic economy, even though the drought and an average trade performance will again detract from that.

The US is the major influence for now and it is clear the risks to the world economic outlook have risen noticeably in November.

Market interest rates have already tightened in Australia in recent weeks with echoes of the August credit crunch returning, but its not as severe here as it is in Britain and the US, or in parts of Asia, such as South Korea where credit has tightened appreciably.

It wouldn't be surprising to see some major banks moving up variable mortgage rates by around 0.10% to 0.20% in the next week or so, once the RBA decision is known. In fact Adelaide Bank, now part of Bendigo Bank, will be boosting some of its rates this week for the second time outside a RBA move since the August credit crunch.

The AMP's chief economist and strategist, Dr Shane Oliver believes the continuing problems in credit markets are likely to be delivering a de-facto monetary tightening anyway because if security markets don't soon settle down then banks and other mortgage lenders are likely to pass on higher funding costs to their customers.
"In fact, we are becoming increasingly confident in our view that (RBA) interest rates will remain on hold for the foreseeable future, he said on Friday.

Goldman Sachs JB Were said that last Thursday to clients as well. It's a left of field point of view, especially with the consensus still for a rate rise in the first quarter of next year, once the December quarter inflation numbers are out.

Macquarie Bank's Rory Robertson says:

"Nothing much has changed on the RBA front over the past fortnight. Most observers now are very confident - rightly so - that the RBA will remain on-hold until at least February, until after the Q4 CPI on 23 January makes or breaks the case for further tightening. The RBA Board is set to meet on Tuesday morning, decide to leave its cash rate unchanged at 6.75%, and then to enjoy a Christmas lunch before breaking for its summer holiday.

"As noted here previously, RBA policy in Q1 will depend on much more than just the next CPI," Mr Robertson wrote late last week to clients.

Australian data for the trade balance, profits, building approvals, retail sales and GDP will also be released this week. September quarter GDP is likely show growth of around 0.9%, or 4.7% year on year, driven by strong consumer spending.

The retail sales figures will give us an early sign as to if the retailing good times continued in October after the November 24 poll was called.

In the US, the key business conditions surveys and payroll and employment data for November will be released.

Central banks in Canada, the UK, Europe and New Zealand will all meet on interest rates but all are expected to leave them on hold. The UK could surprise and produce a rate cut, or hint at a cut next month such has been the slide in the British economy in the past month.

The non-statistical item in the US to watch for this week is the plan being pushed by US Treasury Secretary Henry Paulson to hold interest rate payments steady for many subprime borrowers who are facing higher rates and possible foreclosure over the next year.

It's a desperate attempt from a desperate Administration by a desperate Treasury Secretary whose previous statements on the subprime mortgage crisis have verged on Pollyannaish at times.

Now the former Goldman Sachs head is trying to strong arm lenders and investors into a restructuring deal that could postpone the bad medicine for borrowers and lenders alike in a sleight of hand that postpones the inevitable for up to seven years and another Administration.

After falling over the first three weeks of November with market down more than 10% below its October closing highs, stocks rallied for three days last week on the Paulson plan was imminent and rising speculation of a rate cut by the Fed at the December 11 meeting.

MONDAY:

RBA releases Commodity Price Index for November. Australian Bureau of Statistics releases the trade figures for October and the business indicators for the September quarter. TD Securities and the Melbourne Institute release the inflation gauge for November, the Australian Industry Group/PricewaterhouseCoopers release the Performance of Manufacturing Index for November.

TUESDAY:

Reserve Bank Board meets for the last time in 2007. ABS retail sales and building approvals figures. Metcash interim profit results; BHP Billiton sustainability briefing, Chris Salisbury, CEO of ERA resources speak in Melbourne.

WEDNESDAY:

RBA Board decision at 9.30 am. The ABS releases September quarter National Accounts at 11.30 am. Australian Industry group, Commonwealth Bank Performance of Services Index released; Seek employment figures for November, the Federated Chamber of Automotive Industries sales figures for November. Nufarm AGM.

THURSDAY:

Bank of Queensland AGM.

FRIDAY:

Australian Industry Group/Housing Industry Association Performance of Construction Index.

 

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