RBA concerned over Europe, waits for inflation data before rate hike: Economy Roundup

The Reserve Bank of Australia kept rates at 4.5% at its last meeting due to concerns over the growing debt crisis in Europe, the minutes of its latest meeting reveal.

The board said that at the June 1 meeting, it would look to June quarter consumer price index data to determine whether any action should be taken on interest rates. Some economists suggest this could mean another pause is likely at the July meeting.

“In considering the setting of monetary policy, members noted that the situation in Europe had deteriorated significantly over the previous month,” the central bank said in the minutes.

“The difficulties in Europe would inevitably weigh somewhat on prospects for global growth.”

Additionally, the board stated domestic results have also been mixed. “There had been a high level of activity in the construction sector from the fiscal stimulus, but retail spending had been relatively subdued and there were some signs of slowing in the housing market.”

“The national accounts for the March quarter were due for release the day after the meeting. The staff expected the data to show modest growth in GDP for the quarter, with conditions varying across sectors of the economy.”

Overall, however, the RBA said interest rates were now at “average levels”, meaning members could wait and see how the global economic situation unfolded before deciding to move rates again.

Meanwhile, figures from the Australian Bureau of Statistics show the total value of housing finance excluding alterations and additions increased by a seasonally adjusted 0.6% $13 billion in April.

The value of total personal finance commitments decreased by 0.6%, with revolving credit commitments down 1.7% and fixed lending commitments up by 0.7%.

Total commercial finance commitments increased by 5.6%, while fixed lending grew 15.8% and revolving credit commitments dropped 17.1%. Leasing finance fell by 8%.

Shares flat after Wall Street decline

The Australian sharemarket has opened flat today, following weak Wall Street results where a debt downgrade for Greece hit investor confidence.

The benchmark S&P/ASX200 index was down 0.5 points or 0.01% to 4505 at 12.30 AEST, while the Australian dollar actually hit a four-week high against the US dollar at US85c.

NAB shares were up 0.6% to $24.87, while AMP shares lost 0.9% to $5.62. ANZ gained 0.2% to $23.09 as Woolworths lost 0.4% to $27.53.

Meanwhile, the Australian Financial Review has reported that over one third of Clive Peeters’ stores are now thought to be unprofitable – a major burden to any buyer of the business.

The publication also reported that some of these stores had not broken even, and some stores were unprofitable before overheads were taken into account.

The AFR also reported that some potential buyers included Bing Lee, Harvey Norman, JB Hi-Fi and the Good Guys, along with some private equity companies.

Receivers PPB said last week six stores were being closed, in the hope this would make the business more attractive ahead of a sale.

Aquila still in legal dispute

Aquila Resources has said it is still in a dispute with a Brazilian company Vale over the capital budget for a joint coking coal project.

“The dispute has arisen in relation to the condition upon which the initial capital works component is to be approved,” Aquila said in a statement.

“BCC (Vale’s subsidiary Bowen Central Coal Pty Ltd) has proposed that the condition be that a feasibility study is delivered and the participants in the project make a decision to undertake mine development for the relevant development area.”

Sources have told Reuters that the Indonesian Gunawan family, which controls 46% of the PT Bank Panin, is in talks to sell its $US1.4 billion stake to ANZ.

“They are in negotiation to find the best suitor for the bank and the best price,” the source has said. However, The Australian has reported that this bid could be derailed.

Wall Street shares down after debt downgrade

In the US, Wall Street shares have fallen after Moody’s Investors Service downgraded Greece’s government bond ratings even further, citing risks in the Euro-Zone and the IMF rescue package.

Investors were caught off guard from the announcement, with Wall Street traders still nervous about oil giant BP’s involvement with the Gulf of Mexico spill.

The Dow Jones industrial average slipped 20.18 points, or 0.20%, to 10,190.89, while the Standard & Poor’s 500 index dropped 1.97 points or 0.18% to 1,089.63.