Tuesday, January 08, 2008

Australian Government moves to micromanage interest rates

This story has the first blush of bashing the newly elected Labor Government, as the SMH and other major Fairfax/non-Murdoch Australian papers (compare this) report that Treasurer Wayne Swan is doing more jawboning than chewing the fat over recent bank interest rate rises that are not immediately connected with official interest rate rises.

But watch carefully; not all is as it seems as the story gets spinned.


The SMH report:
THE Treasurer, Wayne Swan, has sought urgent briefings from key financial and regulatory agencies about a decision by the ANZ Bank to lift its standard variable mortgage rate by almost double the amount announced by NAB last week.

But in a strong message to these other banks, Mr Swan said last night he was seeking advice on why the ANZ's increase was so much larger than that by NAB.

"I would also point out that any excessive rises will not be viewed favourably by the Government ...," he said.
It sounds as if he's summonsed watchdogs to answer to him:
Officials from the Reserve Bank, the Australian Prudential Regulation Authority and Treasury will brief the Treasurer in his Brisbane offices today about the discrepancy.
The Melbourne Age on the same topic:
Treasurer Wayne Swan has issued a veiled threat to banks not to be greedy after a second major institution lifted mortgage rates independent of the Reserve Bank of Australia (RBA).

Both banks have blamed their decision to lift rates - independent of any change in the official cash rate by the RBA - on the global credit crisis.

And homeowners could be facing further pain when the RBA meets on February 5 to decide whether it should raise the official cash rate from its current 6.75 per cent.

Last week, Mr Swan defended NAB's decision as he urged the banks to think about the impact of their actions on families and businesses.

While still maintaining that the banks were acting as a direct result of the credit crisis, Mr Swan pointed out they were very profitable and warned unnecessary hikes would be frowned upon.

"Although this is clearly a direct consequence of the US sub-prime crisis, I do point out that Australian banks are very profitable, and would caution them against putting additional and excessive pressure on families," he said.
And here's that summons again:
He will seek briefings from RBA and regulatory authorities on Tuesday in what appears to be a move to make sure that the banks aren't taking advantage of their customers.

Mr Swan has asked for briefings from the RBA and prudential authorities to satisfy himself of the necessity of the hikes.
The Murdoch take is puzzlingly "friendly" in playing down the hands-on approach of the Government while also providing some of the same quotes as Fairfax articles:
The rise, which follows the 0.12per cent increase announced last week by the National Australia Bank, sparked a warning from the Treasurer, who was last week criticised for his soft approach in handing the bank's rate rises.

"Customers will want to know why the ANZ's hike was almost twice the NAB rise announced last week and that's a fair question," Mr Swan said.

"I would also point out that any excessive rises will not be viewed favourably by the Government or by Australian families, who can vote with their feet in a competitive banking market."
And the mention of summonsing briefings was certainly toned down:
The Treasurer called together top officials from the Reserve Bank, the Treasury Department and banking regulator APRA for a briefing on the economic outlook as a rise in US unemployment sparked a sell-off on Australian and Asian markets.
So is the Labor Government going where no Australian Government has gone before?

Hardly, as Murdoch News explains:
"Treasurer (Wayne) Swan's tempered reaction to NAB's rate increase shows that the pseudo-regulation of mortgage pricing has been removed."

ANZ chief economist Saul Eslake said banks would have increased mortgage rates sooner, but for extreme political pressure by former treasurer Peter Costello.

"The main reason why banks haven't moved before this point is, to put it bluntly, because of the extraordinary political pressure exerted on banks by the previous government, and in particularly by the previous treasurer Peter Costello during the lead-up to the last election campaign," he said.

Mr Eslake said Prime Minister Kevin Rudd and Mr Swan had taken the position that it was up to banks to decide when to raise rates.
So what's going on here? It appears to Guambat that the Fairfax media adoration of Malcolm Turnbull deserves to be served with a spoonful of salt.

It also appears to Guambat, however, that the Government had better learn to set its own agenda, if it has one, rather than let Mr Turnbull set up straw men for them to try to knock down. After all, this is the same Turnbull who turned the Republican issue upside down so very craftily.


The Australian ABC reported: Swan, Turnbull trade blows over rates rise
The Federal Opposition's treasury spokesman Malcolm Turnbull has seized on the [bank rate] move, warning the Government's industrial relations changes are adding to the problem.

"The reality is that the Rudd Government is working to put prices up," he said.

But Treasurer Wayne Swan has hit back, saying he inherited a legacy of inflation.

Mr Turnbull says for a government that campaigned hard on the cost of living, Labor's done little to help struggling families since coming to power.

"What's happened since he's been elected, is we've seen petrol prices going up, interest rates going up," he said.

"What's Rudd got to say about it? What's Wayne Swan got to say about it?

Nothing."
That's classic Turnbull, taunting the opposition into a position where there is no defensible stand to take; the issues are beyond Government control. Turnbull, it should be remembered, was a player in the immediately prior Government which had been in power for near-record time, and Labor has only just recently been sworn in, so it is particularly cheeky to ask "what's happened since he's been elected?"

Guambat reckons, when Malcom says, "What's you got to say about it?", that nothing is a pretty good response. Instead of pollie-knee-jerking slapping the cheek back, Labor should turn another cheeky. Talkin' ain't walkin', noways.

Guambat remains baffled, though, at the strange bedfellows: Murdoch and (liberal) Labor vs Fairfax and (conservative) Liberals.

It is probably simply a case of Foxy Rupert, being the pragmatic mogul that he is, choosing a bedmate from within whatever government is holding (or about to grasp) power, and Fairfax having the opportunity to promote a fellow Eastern Suburbs plum whilst also sniping away at the government of the day.

Davo would probably have a much clearer understanding.

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