RBA could leave rates on hold next month, minutes show: Economy Roundup

The Reserve Bank of Australia could leave interest rates on hold next month after it decided variable mortgage rates could be reaching average levels, the board minutes of its latest meeting reveal.

Additionally, increases in commodity prices and concern over inflation caused the Reserve Bank of Australia to increase interest rates at its May meeting, despite fears of the growing debt problems in Europe, the minutes show.

The RBA said in the minutes that while the European crisis had caused members to consider waiting to raise rates, inflation forecasts were more immediate threats.

“On balance, members judged it to be prudent to undertake some further monetary tightening at this meeting,” the RBA minutes said.

However, the minutes also stated that members believed another rate rise would push variable mortgage rates to more average levels, indicating a pause could be expected in the next month or so.

“They noted that, if lenders responded as expected to another rise in the cash rate, interest rates faced by most borrowers would then be at around their average levels over the past decade,” the minutes stated.

“Members felt that this would leave monetary policy well placed for the present.”

The minutes also said the global economic recovery is expected to be shaky throughout the rest of the year, and that the pace of global growth will be “at least average”.

Meanwhile, Macarthur Coal has rejected the latest bid from US-based Peabody Energy Corporation, saying it is aware of opposition from Chinese shareholder CITIC.

CITIC, the company’s largest shareholder with a 22.4% stake, has said it did not find the offer attractive. The Macarthur board also said there was no basis for any further discussions, sending shares down 12% to $11.71 this morning.

“CITIC believes that the long-term strategic value of Macarthur Coal exceeds by a significant margin the cash offer price contained in [Peabody’s Further Proposal],” Macarthur said.

AXA may terminate $14 billion NAB offer

AXA Asia Pacific Holdings chairman Rick Allert has said at the company’s annual general meeting that it is still deciding whether to terminate a $14 billion offer from NAB.

If approval from the Australian Competition and Consumer Commission is not secure by May 31, then the deal could be terminated.

“Termination is not automatic and will only occur if one of AXA APH, NAB or AXA SA exercises that right,” he said. “Your independent directors will further consider this matter in light of the prevailing circumstances at that time.”

“In the event that any proposal is received from AMP, or anyone else for that matter, your independent directors will consider it on its merits subject to any legal restrictions under the current agreement with NAB and AXA SA,” he said.

NAB may also have some more troubles, with the law firm organising a class-action against the bank for unfair overdraft charges saying new action will be taken due to losses from collateralised debt obligations.

Law firm Maurice Blackburn has said shareholders lost $450 million from NAB after it did not reveal its exposure to the CDOs. New proceedings are set to begin in the Federal Court within six weeks.

The Australian sharemarket has opened flat today, following a disappointing result yesterday when stocks fell 3% due to weaker financial results worldwide as fears over European debt surfaced once again.

The benchmark S&P/ASX200 index was up five points or 0.13% to 4473.2 at 12.15 AEST, while the Australian dollar also stayed firm at US88c – its lowest level since February.

ANZ shares have fallen 1.6% to $21.80, while Commonwealth Bank shares also gained 1% to $52.24. Westpac rose 0.6% to $23.42 as NAB lost 0.2% to $24.81.

As reported by The Australian, mining giant BHP Billiton has said it will hold shareholder meetings across the country in order to gain support for its campaign against the Government’s new mining tax.

“The risk is that Australia could now be seen by the rest of the world as a less stable and less competitive place for long-term investments,” chairman Jac Nasser said in a letter to shareholders yesterday.

“If this eventuates, the great work of Australians to build the strong economic foundation of the country over decades could be undermined, representing a crucial turning point for Australia.”

US Senate to oppose more IMF bailouts

Meanwhile, overseas, the US Senate has said it will oppose bailout packages from the International Monetary Fund to countries that are unlikely to repay the loans.

The vote, which came at 94-0, comes as the IMF is helping distribute a $US1 trillion package to Greece in order to help the country control its debt. The IMF has been asked to help other debt-laden countries, such as Portugal and Spain.

But critical American senators have said their constituents have grown tired of bailouts, after seeing national banks given billions during the 2008-09 economic crisis. The US is the IMF’s largest contributor, and has the power to block certain decisions.

Also in the United States, The Australian has reported an informant for US regulators organising a fraud case against investment bank Goldman Sachs has said Australian regulators should be investigating similar claims.

David Mapley, who was an outside director of Australian hedge fund Basis Yield Alpha Fund until it collapsed in 2007, has said that “I don’t know if the regulator in Australia is looking at this trade but they certainly should,” referring to the bank’s use of collateralised debt obligations.

On Wall Street, stocks rose slightly, with fears regarding Europe’s debt problems offset by investors picking up bargain shares. The Dow Jones Industrial Average gained 5.67 points or 0.05% to 10,625.83.