'Predatory' lenders seek ASIC approval June 30, 2010 (Austrlia Mortgage)

Australian LENDERS named in a landmark predatory lending case have registered as consumer credit providers under the Australian Securities and Investments Commission's new national licensing program.

ASIC is taking over regulation of all consumer lending, including credit cards, store cards and mortgages tomorrow, replacing the state-by-state approach.

Bleier Mortgage Corporation, in Double Bay, and Permanent Mortgages, in Traralgon, Victoria, have registered to become credit providers. The registrations, the first step in gaining consumer credit licences, have been made although both lenders were named in a 2006 ruling in the NSW Supreme Court about predatory lending.

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Length of Reserve Bank's interest rate pause will depend on inflation

HOW long the Reserve Bank pauses on interest rate hikes hinges on the next Consumer Price Index release due late next month.
If the June quarter CPI shows underlying inflation falling into the RBA's 2-3 per cent target zone, Glenn Stevens will be encouraged to keep interest rates at neutral for most of this year, as he seeks to manage Australia's two-speed economy.

If it doesn't, the RBA will have to again increase its public inflation forecasts to the top of, or even above, its target zone. The RBA governor surely knows this would threaten the central bank's hard-won low-inflation credibility and force him to into a restrictive monetary policy mode.

This could result in rate hikes resuming from the scheduled August 3 board meeting.

The changed form of Stevens' report from Tuesday's monthly board meeting clearly underlines the new, neutral phase of monetary policy.

His statement was one-third shorter than usual, and by avoiding the usual discussion of the domestic economy it suggests the RBA is not searching for a trigger to raise interest rates soon.

Between October last year and May this year, the RBA lifted its cash rate from 3 per cent to 4.5 per cent in six 25-basis point steps.

Stevens this week called it a "significant adjustment" from the "very expansionary settings" in response to the global financial crisis.

Neutral monetary policy now is "appropriate for the near term".

While the timing is deliberately vague, the RBA's favoured choreography is to pause for six months or so after adjusting monetary policy in a series of quick, small steps.

Stevens's statement focuses on an additional reason for the RBA to stay on the sidelines for a bit. When he lifted the cash rate to 4.5 per cent in early May, Stevens suggested the Greek sovereign debt crisis had produced "very little contagion" outside Europe.

Almost immediately, however, the Greek crisis spread dramatically to global financial markets. Further bouts of market instability are likely.

Stevens now says the new sovereign debt crisis "will need to remain under review".

But he still expects the global economy to post trend growth this year, with budget tightening weighing on soft European economies, the US recovery becoming more established and China-based Asia expanding, perhaps too vigorously.

That underpins the Reserve Bank's central scenario that high iron ore, coal and other commodity prices will fuel national income and spending, and push the economy toward its trend growth rate of 3.25 per cent or so over the coming year.

Yesterday's national accounts suggest the economy is heading back to trend growth, expanding 0.5 per cent in the March quarter and 2.7 per cent over the year. But growth remains uneven as last year's budget stimulus gives way to a new wave of mining development. Retailers are complaining about soft consumer spending.

Stevens no doubt would love to keep the Goldilocks combination of trend economic growth, neutral interest rates and target zone inflation going as long as possible.

But, while the heat is coming out of housing prices, it's not clear that CPI inflation is becoming re-anchored inside the 2-3 per cent target.

In part, this reflects double-digit price increases for electricity, gas and water required to pay for a catch-up of infrastructure investment.

The shallow downturn means the economy is operating with less spare capacity than expected. The higher dollar has pushed down import prices and allowed retailers to discount heavily.

This is unlikely to keep giving and, with unemployment forecast to edge below 5 per cent, catch-up wage demands could start pushing up labour costs. In May last year, the Reserve Bank forecast that a sharp economic downturn would push underlying inflation to 1.5 per cent, comfortably below target, by mid-2011. But the inflation outlook has worsened in every quarterly forecast since then.

A mildly disappointing March quarter CPI result forced the RBA economists to tip that prices growth would edge down only slightly to 2.75 per cent this year and next before nudging back up to 3 per cent in 2012.

That prompted the RBA's May board meeting to increase the cash rate when a pause had been on the cards.

The issue is whether the June quarter CPI, slated for July 28, will again disappoint. To maintain the credibility of its low inflation regime, the central bank can't do nothing if inflation threatens to move above target again.

The Reserve Bank's mantra is that it had to go through the deep recession of the early 1990s to break the back of high inflation.

It had to work hard after that to establish the policy independence and credibility that has underwritten nearly two decades of low-inflation economic expansion.

It may have to do the unpopular thing again to keep that credibility intact.

Source: The Australian