Interest rates stay put… for now
The Reserve Bank of Australia announced this morning that it will not increase interest rates, but economists remain divided about the likelihood of a rise in the months ahead.
Businesses in the stuttering manufacturing and housing sectors will breathe a sigh of relief over the decision, as will tourism businesses that would have been affected by any rise in the dollar triggered by a rate rise.
Housing Industry Association economist Harley Dale welcomed the decision. “Low housing affordability has so far prevented a recovering in new housing. Any chance that we might see the emergence of such a recovery over the course of 2007 would be snuffed out by a further increase in mortgage rates,” he says.
The decision not to raise interest rates today does not increase the likelihood of an increase in May, NAB head of economics for Australia Jeff Oughton says.
“The big issue for us is what’s happening in the US. We’re increasingly nervous the US looks like it could slow down significantly or even go into recession over the next couple of quarters – you don’t want to be an RBA increasing interest rates just as the world’s biggest economy goes into recession,” Oughton says.
However, there is not unanimous agreement with this view. ANZ head of Australian economics Tony Pearson says the case for an increase next month is “compelling,” while TD Securities senior strategist Joshua Williamson says there is a 55% to 60% chance the RBA will raise rates when it next meets.
“The RBA will look at next month’s CPI report and the health of the US economy and what it means for global economic health, also housing growth and the recent weakness in the manufacturing sector has weighed heavily on the decision this morning, so clearly that will be a factor in May,” Williamson says.
– Mike Preston
New media laws to drive up ad prices
Advertising costs for SMEs could rise as a result of new cross-media ownership laws that take effect today, industry analysts say.
Independent media analyst Peter Cox says the new laws, which relax rules that prohibited one company owning assets across more than one kind of media, will result in industry consolidation due to decreased competition.
Cox says small media players in particular will be targeted for acquisition. “You will see the big fish will swallow up the minnows,” he says.
The consolidation of smaller players into large national media groups will limit local advertising options, he says.
“There will be bigger prices at the small end, absolutely. Local ads are very important in Australia and you will lose some of that ability to go local. Local newspapers and radio will still be there, but less competition will have to drive up prices,” Cox says.
But Fusion Strategy media analyst Steve Allen says that while smaller media players will be snapped up in the buying frenzy, there is no certainty that advertising prices will rise.
“There’s still a fair bit of competition, and the ACCC would concern itself with any loss of concentration, so that should keep media companies honest,” he says.
– Mike Preston
Unions struggle to maintain their relevance
Australia’s trade union movement continues its decline of membership with only 15.5% of employees in the private sector members of a union compared to 16.7% in 2005.
Data from the ABS shows that union membership also fell to 20.3% of the workforce at August 2006, despite last year’s widespread WorkChoice’s campaign by the unions. Union membership was lowest in Western Australia, probably due to the proliferation of workplace agreements in the mining industry.
Meanwhile, ACTU president Sharan Burrow has lashed out at Labor’s proposal to double the probationary period for employees in the small business sector from six to 12 months.
– Amanda Gome
Smart meters for SMEs?
An accelerated national rollout of smart electricity meters to all Australian homes is on the table at next week’s federal-state COAG summit. Smart meters measure electricity consumption at half hour intervals enabling consumers to monitor and defer their energy to use cheaper off-peak times.
It is early days for the idea. Details such as who will pay for the devices, which device will be used, and whether it is a state or federal program, are still to be decided, says Andrew Blythe, chief executive of the Energy Networks Association, which represents energy distributors.
But there is potential for small and medium businesses to gain from a national rollout, through becoming more aware of their use and by shifting energy use to off-peak to save costs.
– Jacqui Walker
Broadband debate hots up
Communications Minister Helen Coonan is peddling hard to get results on broadband now that it has shaped up as an election issue.
Yesterday she vowed to change regulations, if required, to get the Australian telco industry to pay for building a better broadband network. She left open the possibility of fiddling with pricing principles that would tell the ACCC how to set rates with Telstra and its rivals.
Coonan is in discussions with Telstra, Optus and the big infrastructure builders to find out what it will take to get a faster network. She is now competing against the federal Labor plan to spend $4.7 billion on an industry joint venture to deliver fibre to the node to 98% of Australians, if it wins government at the next election.
– Jacqui Walker
Australian markets have responded strongly to the RBA decision not to raise interest rates this morning, the S&P/ASX 200 lifting 1.1% to a record high of 6078.9 at 11.50am.
The Australian dollar dropped to US80.89 cents at 11.55am, from US81.18 cents before the announcement.
New motor vehicle sales jumped 8.1% in February, driven by increases of close to 18% in both Western Australia and the ACT.
And growth in the Australian services sector slowed slightly, according to this morning’s Australian Industry Group-Commonwealth Bank Performance of Services Index.
The index shows retail slowing considerably, while accommodation, hospitality and health sectors enjoyed the fastest growth.
– Mike Preston
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