RBA will cut rates if inflation under control: Midday Roundup

The Reserve Bank has signalled it would be prepared to cut interest rates if it believes inflation is under control, board members revealed in the minutes of its latest meeting.

After keeping the interest rate on hold at 4.75% for nearly a year, the RBA has said that as long as price growth remains in step, then it may give the bank scope to cut interest rates.

“Members believed that an improved inflation outlook, if confirmed by further data, would increase the scope for monetary policy to provide some support to demand, should that prove necessary,” it said in the minutes.

“Members noted that financial conditions had already eased somewhat, with interest rates for some housing and business loans declining slightly because of increased competition and the fall in funding costs in financial markets. The exchange rate had also declined somewhat from the very high levels of a few months ago.”

The RBA also pointed out that global financial markets continue to remain unsettled, and that domestically, there are large differences in performances between sectors. Although it said performance in the mining and services sectors was growing strongly, others weren’t so lucky.

“In other sectors, cautious behaviour by households and the earlier rise in the exchange rate were having a noticeable dampening effect.”

The minutes should increase speculation over whether the RBA will be prepared to cut interest rates on Melbourne Cup Day – exactly one year after it made the shock announcement to raise the cash rate.

Telstra reaffirms dividend, as shareholders prepare for NBN vote

Telco giant Telstra has reaffirmed its commitment to a 28-cent fully franked dividend for the next two financial years, as shareholders gather to vote on the company’s $11 billion deal with NBN Co.

Chairman Catherine Livingstone also flagged the possibility of a share buyback should the NBN deal proceed, as expected.

The deal will see the company split into two: a retail arm and a wholesale arm.

Shares fall on dashed hopes for Europe

The Australian sharemarket has fallen over 1.5% this morning after a weak night on Wall Street, where stocks also fell as investors became disappointed in a G20 meeting that some thought would hold more answers to solving the European debt crisis.

The benchmark S&P/ASX200 index was down 1.7% or 73 points to 4202.3 at 12.00 AEST, while the Australian dollar also fell to $US1.02c.

AMP shares fell 1.8% to $4.20, while Commonwealth Bank shares dropped 1.76% to $47.46. Westpac shares lost 1.09% to $21.75 as NAB lost 1.66% to $24.34.

In the United States, the Dow Jones Industrial Average fell 247 points or 2.1% to 11,397.

Cochlear recall to cost $150 million

Cochlear has said the recall of its faulty devices is expected to cost the company $150 million.

“Based on current information, our view for this provision item, or recall cost, is that the financial impact will be in the range of $130 million to $150 million,” chairman Rick Holliday-Smith said this morning in an address to shareholders.

However, he maintained the company was well placed to handle the recall and its associated costs.
“The board and senior management believe the company will continue to generate strong cashflows and that we will be successful in dealing with the current issues,” he said.

Woolworths unveils $500m capital raising

Retail giant Woolworths has announced a $500 million note offer, with proceeds to be used for general corporate purposes.

Woolworths told the market this morning that a prospectus has been lodged with the Australian Securities and Investments Commission for an offer of dated, unsecured, subordinated, cumulative notes at $100 each to raise $500 million.

The offer is made part of the company’s ongoing capital management strategy, and comprises an institutional offer, a broker firm offer, and shareholder offer, and general offer.

At 11.45 AEST, Woolworths shares were trading 0.65% lower at $24.53.