Rates at 7.25%, Trade Deficit Jumps

123jump.com Staff
04 Mar, 2008
New York City

The Reserve Bank of Australia increased rates by 0.25% to 7.25%, 12-year high to stem the rising inflation. Food and energy prices have jumped on the falling U.S. dollar and strong economic growth. Separately, Australian retail sales in January rose 0.4% after rising 0.4% in December and 0.5% in November 2007. Fourth quarter traded deficit increased to a record level on rising Australian dollar.

[R]3:00AM New York, 7:00PM Sydney – The Reserve Bank of Australia hiked interest rate by 0.25% to 7.25%, 12-year high to reign in the rising inflation.[/R]

Market Sentiment

ASX 200 index shed 0.5% or 25.5 to close at 5,380.30.

The preliminary market turnover was 1.43 billion worth $5.82 billion, with 225 stocks trading higher, 1,030 trading lower, and 298 unchanged.

Market Driver

Australia''s central bank today increased its benchmark interest rate for the second time in four weeks to reign in fast rising inflation. Food and energy costs are rising fast as international costs of crude oil and base metals have increased on the falling U.S. dollar. The recent hike in rate is the 12th consecutive increase in rates since the May of 2002.

Australian dollar may become more attractive to carry trader looking to profit from interest rate arbitrage. The gap between the U.S. interest rates and Australian rates is now 4.25%, widest in three years.

The bank raised the overnight cash rate target by a quarter to 7.25% as a measure of containing the fastest inflation since 1991. Governor Glenn Stevens said the rates had risen ``substantially'''' since mid-2007.

The revised rates sent the Australian dollar tumbling but boosted bonds, which rose as investors hoped that more rates hikes are likely in the near future.

The Australian dollar fell to US$0.9311 from $0.9376 before the decision. The yield on the two-year government bond dropped 10 basis points, or 0.1%, to 6.56%.

New Zealand is likely to keep its benchmark rate at 8.25% in a meeting on March 6th.

Gainers and losers

Of the ASX 200 index stocks, Riversdale Mining led the gainers with a rise of 8% followed by increases in Western Areas NL of 7.2%, in Coeur D''Alen-CDI of 5.5%, in Just Group Limited of 5.2%, and in Kagara Limited of 5.1%.

Of the ASX 200 index stocks, City Pacific Limited led the decliners with a plunge of 49.2% followed by losses in Allco Finance Group of 37.1%, in APN/UKA European of 22.1%, in Centro Properties of 14.3% and in Perilya Limited of 13.7%.

Allegiance responds to shareholders

Allegiance Mining NL today urged its shareholders to accept Zinifex $852.4 million takeover bid and reiterated that Zinifex''s $6.2 billion merger with Oxiana would not affect the bid.

""""We have received a large number of calls from shareholders seeking clarification as to what their options are with respect to the Zinifex Offer for their shares in Allegiance,"""" the company said in a statement.

Alliance said its shareholders could either follow the Directors recommendation or accept the final offer of $1.10 per share, which was scheduled to close at 7pm on Friday 7 March 2008.

The Zinifex Offer price is $1.10 per share, which is a 55% premium to Allegiance''s closing price of $0.71 on 14 December 2007, prior to the first Zinifex offer. Alternatively the company said shareholders could sell on-market at the prevailing price or do nothing and continue to hold shares in Allegiance.

""""However, should Zinifex acquire more than 90% of the Allegiance shares, it will be able to compulsorily acquire Allegiance shares for $1.10 per share,"""" Alliance said.

In this respect Alliance warned its shareholders that there was a risk that the price of Allegiance shares may fall below the $1.10 offer price after the close of Zinifex''s offer, and that they may become minority shareholders.

""""Under all circumstances if Zinifex acquires your shares you will be paid for them – they cannot be forfeited for nil consideration,"""" the company said.

Alliance also announced that its directors of Allegiance have not received notice of any alternative or superior proposal. Zinifex and Oxiana announced plans to merge on yesterday. Zinifex already holds a 14.42% stake in Allegiance. Shares in Zinifex shed 10.5% and Oxiana''s shares fell 9.5%.

ABC extends voluntary suspension

Childcare centre operator, ABC Learning today requested the extension of its voluntary suspension by two days to enable it to conclude negotiation on the sale of part of the business.

In a letter to the exchange today, company secretary Mathew Horton said they expected trading to continue on Thursday.

""""ABC wishes to inform the market that the discussions are still continuing and the voluntary suspension is now expected to last for a period of four trading days, with trading in ABC securities recommencing on Thursday 6 March 2008,"""" wrote Horton in his letter.

ABC requested for a voluntary suspension of its securities from quotation on Thursday last week as a result of continuing discussion with respect to indications of interests that it had received for some parts of its business.

At the time it had only requested for a trading halt for three days. The company''s chief executive Eddy Groves is traveling to the U.S. to meet potential investors. The company''s share plunged last week after the release of disappointing profit results.

Banks to hike interest rates

Australia''s three biggest banks, National Australia Bank, Commonwealth Bank of Australia and Westpac today announced that they would review their interest rates in tandem with the increase in the official cash rate by 25 basis points.

Treasurer Wayne Swan however warned banks that customers would vote with their feet if financial institutions raised mortgage rates higher than the quarter of a percentage point. The big four banks last month lifted their rates higher than the official RBA increase.

City Pacific requests trading halt

One of Australia''s largest finance brokers and property investor City Pacific today requested for a trading halt after its share fell by 50%. City Pacific''s share had shed 49.2% after hitting a morning low of 81 cents, when trading was halted before mid-day.
City Pacific is expected to respond to a query from the Australian Securities Exchange about the large movement in its share price. The firm said the trading would remain suspended until the start of normal trading on Thursday or a further announcement.

""""We expect our response to the price query received from the ASX will be the event that will end the trading halt,'''' City Pacific said.

Shares in City Pacific have fallen sharply this week after it re-released its interim results on Friday to clarify its accounts. Investors were concerned that it would be unable to refinance some of its debt.