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Australia Holds Rates as Inflation Speeds Up, Stimulus Signs Mount

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  • Australia Holds Rates as Inflation Speeds Up, Stimulus Signs Mount

Australia kept interest rates unchanged as faster inflation and signals of looming fiscal stimulus combine with an upswing in global growth.

“Above-trend growth is expected in a number of advanced economies,” Reserve Bank of Australia Governor Philip Lowe said in a statement announcing the decision Tuesday. “The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia’s national income.”

The central bank also left the cash rate at a record-low 1.5 percent — as expected by all 28 economists surveyed by Bloomberg — to allow regulatory rules targeting riskier property loans to take effect amid hot housing markets in Sydney and Melbourne.

The lending crackdown is designed to discourage households — already among the world’s most indebted — from gearing up further after east-coast property prices doubled since 2009. The RBA fears that, in a weak wage growth and with inflation still subdued, over-leveraged borrowers could slash spending in an economy where consumption accounts for more than half of output.

“Growth in housing debt has outpaced the slow growth in household incomes,” Lowe said. “The recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness.”

The Australian dollar edged higher, buying 75.42 U.S. cents as 3:18 p.m. in Sydney compared with 75.37 cents prior to the decision.

“The bank’s forecasts for the Australian economy are little changed. Growth is expected to increase gradually over the next couple of years to a little above 3 percent,” Lowe said in a preview of the central bank’s quarterly update due Friday. “Growth in consumption is expected to remain moderate and broadly in line with incomes. Non-mining investment remains low as a share of GDP and a stronger pick-up would be welcome.”

Australia’s government has given itself leeway to finance projects like road and rail by redefining debt in its May 9 budget. Treasurer Scott Morrison is seeking to distinguish between good debt — used for productivity enhancing or income-generating infrastructure — and bad debt used to fund things like welfare and health. That would ease the constant pressure on the RBA to support the economy since late 2011.

Low Wages

Stimulus is needed as wage growth remains at a record low, a product of the economy adjusting to regain competitiveness as the unwinding of a mining investment boom nears its completion. While inflation returned to the bottom end of the RBA’s 2 percent to 3 percent target in the first three months of the year after spending nine quarters below it, the key core measure didn’t.

Moreover, there’s little sign on the horizon of fatter pay packets to fuel consumer prices as the jobless rate holds at 5.9 percent and under-employment remains elevated, signaling plenty of slack in the labor market.

“The unemployment rate is expected to decline gradually over time,” said Lowe. “Wage growth remains slow and this is likely to remain the case for a while yet.”

Amazon Effect

The nation’s retailers have also been trapped in a deflationary environment as global brands entering the market drive down prices; they are likely to have to steel themselves anew following the announcement Amazon.com Inc. is heading Down Under.

On the upside, Australia is the most China-dependent economy in the developed world and is benefiting from demand in the world’s No. 2 economy for everything from commodities to education to tourism. Australia had a record 1.2 million visitors from China last year.

Business conditions have also remained strong, even as the Aussie dollar has risen more than 4 percent this year, one of the best performers in the Group of 10 currencies tracked by Bloomberg. That’s a headwind for services like tourism and education that must compete internationally.

The governor reiterated his long standard comment that an appreciating exchange rate “would complicate” the economy’s transition from a mining investment boom.

“Taking account of the available information, the board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” Lowe said in a concluding paragraph that was unchanged from last month.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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