Reserve Bank says rates appropriate but inflation risk remains: Economy Roundup

The Reserve Bank of Australia has told Parliament that current interest rates settings are appropriate, although fears of higher inflation still remain for the medium-term.

“Overall, and also taking account of the exchange rate, which has risen substantially this year, we judge this to be the appropriate [monetary policy] setting for the period ahead,” governor Glenn Stevens told a House of Representatives committee this morning.

Stevens said that although inflation is set to be close to its current level over the next year, within the RBA’s target band of 2-3%.

“But looking further ahead, in an economy with reasonably modest amounts of spare capacity, the terms of trade near an all-time high and the likely need to accommodate the largest resource-sector investment expansion in a century, it is pretty clear that the medium-term risks on inflation lie in the direction of it being too high, rather than too low.”

Stevens said the decision to keep the cash rate unchanged in October was “finely balanced”.

Stevens also confirmed the RBA’s forecasts for GDP growth of 3% in 2010 and 3.5% in both 2011-12, and added that terms of trade are expected to remain strong.

“Next year, growth could be stronger than we had expected nine months ago, though obviously there are still numerous areas of uncertainty,” he said.

“Measured in nominal terms, the rise in GDP is running at about 10 per cent per annum just now, because of the rise in the terms of trade.”

Meanwhile, Premier Investments has said it expects 2011 earnings from Just Group will be at the lower end of its guidance range after the first quarter was more difficult than expected, chairman Solomon Lew said at the company’s AGM.

“Subject to the anticipated performance over Christmas and January, and to the overall level of retail spending, Premier believes that FY2011 Just Group EBITA will be at the bottom of the range ($100 million) previously provided to the market,” he said.

“The combination of such factors as continued extensive industry discounting, abnormal weather in major markets and interest rate pressures has meant that Q1 was even more difficult than anticipated with group total sales being marginally below last year.”

National Australia Bank chief executive Cameron Clyne has attacked the Coalition’s proposed measure for ending price signalling that leads to price collusion, calling the suggestion “ludicrous”.

“I think as an industry we need to be accountable for the decisions we make and we need to be transparent…(the bill) will keep consumers in the dark.”

Shares higher despite no lead from Wall Street

The Australian share market has opened higher this morning despite no lead from Wall Street due to the Thanksgiving public holiday.

The benchmark S&P/ASX200 index was up 13 points or 0.29% to 4606.7 at 12.15 AEST, while the Australian dollar also gained ground to US98c.

ANZ gained 0.7% to $22.63 as AMP rose 1.2% to $5.07. NAB gained 0.7% to $23.46 as Westpac fell 0.4% to $2.12.

Aristocrat Leisure has issued a profit warning citing tough conditions in the United States and Japan, sending its shares falling by up to 20% to a new low of $2.65. The company has revised its operating profit forecast for 2010 to between $50-60 million.

“Aristocrat continues to expect that growth momentum in key jurisdictions is unlikely to build materially before 2012,” Aristocrat said in a statement.

Meanwhile, Pike River Coal major shareholder New Zealand Oil & Gas has said it has agreed to make $12 million available for the company following the disaster at the Greymouth coal mine.

“This decision was taken because there are sound business reasons for honouring our earlier funding commitment,” New Zealand Oil & Gas chief David Salisbury said in a statement.

“It is also the right moral decision. During this difficult time, the mine company’s workforce needs to know it can still be paid.”

Back home, Foster’s Group has said it will contest income tax assessments of $49.6 million and interest of $17.1 million, with the assessments relating to a capital loss in the 2004 financial year, according to the company.

“Although additional assessments are expected in respect of penalties, Foster’s does not anticipate any further payment being required pending resolution of the matter. Foster’s intends to recognise the amount paid to the commissioner as a receivable until the matter is resolved,” the company said.

South Korean defence minister resigns

South Korean defence minister Kim Tae-young has resigned just two days after North Korea launched artillery strikes against the country, with criticism directed at the Government for the slow pace of its response.

President Lee Myung-bak accepted the notice, “to improve the atmosphere in the military and to handle the series of incidents”.

In Europe, the Irish government has said it is confident it can pass a budget next month despite expectations it will be defeated at an election.

“I am quite satisfied from my discussions both with the parties in government and the various public representatives in Dail Eireann that there is a majority for this budget and that it will pass,” Finance Minister Brian Lenihan said in a speech.

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