We sit, Kiwis cut. Yesterday, RBA governor Glenn Stevens made a pretty good case for no more cuts in Australian interest rates as he wondered about the real growth rate for the economy and whether it might be a bit lower than previously expected, and why the bank didn’t want to spark a boom by further rate cuts (not that the bank wouldn’t cut rates if it were convinced of the need) which might threaten financial stability. He made it clear the bank was on a wait-and-watch stance. Across the Tasman, the stance is very different this morning with the second cut in the Reserve Bank of New Zealand’s official cash rate in a row (now at 3% from 3.5% before the June chop) to battle a slowing economy and the huge terms-of-trade shock from plunging dairy prices.
This morning’s cut had been expected after the latest plunge in global dairy prices; the move by giant dairy exporter Fonterra to slash more than 500 jobs (with more possibly to come); and slowing building activity in Christchurch as the recovery from the quakes of 2010 and early 2011 starts slowing. Like Australia, with its property booms in Sydney and Melbourne, NZ has a surging housing market in and around Auckland, and this morning RBNZ governor Graeme Wheeler made it clear the central bank is prepared to wear that to try to help the rest of the economy. The key part of Wheeler’s statement this morning was this “At this point, some further easing (in rates) seems likely.” You won’t see that in Glenn Stevens’ statement at the end of next month’s RBA board meeting on August 4, or in the third Statement of Monetary Policy for 2015 out a couple of days later. — Glenn Dyer
Cautious debtors. If you google Australian household debt and you get a plethora of hits from this year, 2014 and every year for years, you’ll find they all forecast pain and a possible crash. But there is something else common to all these warnings: they emphasise the debt and little else. Now this is not to say Australians don’t have high debt — we do, and the current housing boom in Sydney and Melbourne is causing that to edge higher. But debt doesn’t exist alone. It is often secured by hard assets, like housing. But many of these studies do not drill down into the behaviours of the debt holders. The Reserve Bank does, and every now and then they slip us a nugget. For example, the RBA has been pointing out for years that many Australians are repaying their mortgage debt at a faster rate than they have to. In fact, it’s been estimated (from bank data) that just over half of mortgage holders (and not every house in the country is covered by a mortgage) are using the current record-low interest rates to repay their debt.
Yesterday, Glenn Stevens slipped us another gem. He pointed out in a speech in Sydney that Australian mortgage holders now have “about $90 billion” in offset account balances. Stevens said that while there is a surge in mortgage lending happening, “the story is that households are being more prudent about debt and are holding more liquid assets … Taking a medium-term perspective, though, the general strengthening of the balance sheet among many formerly more-indebted households has to be seen as a good thing.” These are points to keep in mind next time the media reports a “debt shock looms” story about Australian household debt. — Glenn Dyer
Well Fancy that! So, all Andrew “Twiggy” Forrest’s bleatings this year about nasty BHP Billiton and naughty Rio Tinto were nothing but “look at me, look at me” puffery? Fortescue Metals, the company 33%-owned by the Twigster, this morning revealed it had managed a 33% surge in exports in the year to June. Fortescue, in fact, managed to beat its own guidance and ship a record 165.4 million tonnes for 2014-15, and in doing so locked in its Number 3 ranking among Australian iron ore exporters and its Number 4 spot globally. Of course, we don’t know how much of that was produced at a profit and just what the precise position is on pre-paid tonnage — that will come with the annual results next month. But Fortescue’s production and export efforts make a bit of a mockery of his self-interested campaign this year against the likes of BHP Billiton and Rio Tinto when he accused them of not acting in the national interest by producing as much iron ore as they could (both have cut back their plans since then), and urged a cutback. In fact, Fortescue’s record exports for 2014-15 make Twiggy’s complaints look right hypocritical. Of course, Fortescue’s near-death experience earlier this year — when it failed to refinance debt, and then was forced to pay a lot more in terms of higher interest rates when it did manage to restructure debt — might have been behind his moaning. And Twiggy remains confident about the outlook because Fortescue says it will aim at selling 165 million tonnes in the 2015-16 financial year. — Glenn Dyer