Australia Holds Rates at 4.75%; Banks, Miners Rise

Chandrasekhar Atreya
07 Dec, 2010
New York City

Australia left its key lending rate on hold and the Reserve Bank of Australia highlighted low inflation expectations for next several quarters. Stocks rise. Heavy rains damage wheat crops and halt to some of QR National

[R]6:30 PM Sydney, Australia – Australia left its key lending rate on hold and the Reserve Bank of Australia highlighted low inflation expectations for next several quarters. Stocks rise. Heavy rains damage wheat crops and halt to some of QR National’s railroad facilities. Construction activity stayed weak in November.[/R]

Sydney benchmark index posted solid gains in the afternoon session, led by strong performance from banks and miners following news that the central bank left the cash rate on hold.

The ASX 200 Index in Sydney added 0.81% or 38.20 to close at 4,726.80 and the Australian dollar ended higher and closed at 99.08 U.S cents at Sydney.

The Reserve Bank of Australia after its monthly board meeting today decided to leave the cash rate unchanged at 4.75%. The central bank also hinted that the inflation is within its target and likely to remain contained in the next few quarters.

The Governor of RBA said that even though the creditworthiness of a number of European governments are in focus, the terms of trade for Australia are at their highest level since the early 1950’s, and the national income is “growing strongly.”

Governor Glenn Stevens highlighted in an accompanying statement that after the increase of cash rate last month and the subsequent increase in mortgage rates by financial institutions, lending conditions in the economy are “little above the average” and views this setting of monetary policy as “appropriate” for the economic outlook.

The decision of the U.S pharmaceuticals giant Pfizer to distribute its medicines directly to chemists from the end of January will hit Australia’s three big drug companies with annual revenue loss of A$1 billion.

The decision of Pfizer to cut its distribution deals with Sigma Pharmaceuticals, Australian Pharmaceutical Industries and privately held Symbion will cut each of these companies’ revenue by nearly A$300 million. This decision triggered a sharp fall in shares of Sigma and API on Monday wiping nearly A$130 million of their combined market value.

Floods and heavy rains in Australia damaged wheat crops, disrupted coal production and caused communities to be evacuated as the eastern states prepared for further wet weather this week.

The rain may cut the quality of more than 40% of the country’s wheat crop, according to estimates by National Australia Bank Ltd. Heavy rain in Queensland caused railroad group QR National to close some of its railroad operations temporarily.

The Australian Bureau of Statistics issued on Monday its 16th review of the Consumer Price Index, which measures changes in prices of goods and services and is used by the RBA to decide the official cash rate.

In this review the Australian Bureau of Statistics said it will remove the controversial measure of financial services inflation and move to a monthly instead of a quarterly publication.

Construction activity in Australia remained weak in November, with new orders registering a further decline and activity dropping in all major sectors, a survey shows.

The Performance of Construction Index (PCI) by the Australian Industry Group Housing Industry Association fell 1.8 points to 42.2 in November, with activity declining in all major sectors except engineering.

Wine production in Australia dropped 3.4% in the year ended June as the number of vines planted declined and the yield from existing vines also dropped.

Newcrest Mining expects to boost its gold output to 3.75 million ounces by fiscal year 2014 from the current 2.74 million ounces, an executive of the company said today.

Stock Movers

Commonwealth Bank rose 47 cents to close at A$49.76 and Westpac gained 26 cents to A$21.94. The other two, National Australia Bank and ANZ gained 24 cents and 22 cents to close at A$23.96 and A$23.49 respectively.

BHP Billiton added 55 cents to A$45.08 while Rio Tinto gained A$1.34 to close at A$87.34. Riversdale Mining dropped 44 cents to close at A$15.87.

Nickel miner Mindoro Resources debuted on the ASX and gained 3 cents to A$0.23.

Gold producer Newcrest Mining gained 1% to A$41.50 after reporting its plan to boost gold production.