THE DISTILLERY: Rates riddle

Jotters give long-term perspective to today's rates decision, and one asks whether the Washington Consensus is really dead.

If we rewind to when the Reserve Bank slashed 375 basis points within the space of four meetings to head off the impact of a global financial catastrophe, it puts into sharp focus the significance of whether Glenn Stevens will cut 25 basis points at today’s meeting. As a writer by the name of Henry Thornton (not his real name) points out in The Australian, monetary policy is Australia’s only real weapon against another serious credit crunch because the budget has been exhausted. Given that global events will have a major impact on our cash rate, two commentators look at growing worries both inside and outside China.

Writing under the pen name Henry Thornton in The Australian, an economist described as "eminent” and "independent” argues that Australian interest rates are pretty neutral and there’s little reason to cut just yet – although it would be nice if it weren’t just monetary stimulus that Australia had left.

"A stronger budgetary position would have left more scope for stimulus if the US and Europe were in more serious slumps than they are at present. A worse outcome than is now expected could still occur, if, for example, Greece and then other eurozone debt dominoes fell, taking eurozone banks with them. And there is legitimate uncertainty about the state of the Chinese economy, and how much it will slow, taking commodity prices down with it. This is no time for monetary policy heroics. Business and household confidence will best be served by a steady approach, well communicated. This is broadly the current situation with monetary policy, and Australia would be well served if the Gillard government adopted a similar approach.”

It’ll be interesting to see if the Reserve Bank takes note of the latest lower growth forecasts out of China, because the long-term trajectory of Australian interest rates will be greatly influenced by the ability of Beijing to defy the doomsayers claiming that it’s government-driven enterprise model is doomed. Thanks to the latest warnings from the World Bank, The Australian Financial Review’s Alan Mitchell revisits comments from its former president James Wolfensohn who declared the Washington Consensus – the privatisation and deregulation model for economic development – was dead.

"Ritualistically since then, its critics have rarely missed an opportunity to dance on the grave of what they see as this American-dictated and deeply flawed free-market recipe for economic development. When Colombia announced last year that it had turned to China to build a ‘dry canal’ to compete with the Panama Canal, it was seen as epitomising Latin America turning away from the United States privatisation-deregulation model, and towards Asia’s successful brand of state-managed, export-oriented development. China, Colombia’s president enthused, is ‘the new motor of the world economy’. And yet, with the publication last week of a joint Chinese-World Bank report on the challenges facing China’s economy, we see a good deal of the spirit of the original Washington Consensus.”

Indeed, Beijing is trying to massage its inflated property sector through this part of the cycle and The Age’s Asian affairs reporter Peter Cai finds real estate tycoons in China getting frustrated by the policies that accompany this goal.

"Though no Chinese tycoon would be bold enough to label any Chinese leader as an intellectual pygmy, some are very critical of Beijing’s policy to cool down the hot property sector. One of the country's largest property developers has warned that the government’s policies are threatening the viability of the real estate sector. In an article he penned for Caijing magazine, Soho China chairman Pan Shiyi, the largest property developer in Beijing, complains that the twin policy of restrictions on property purchase and the program to build 36 million units of public housing will all but kill the real estate sector.”

And fourthly in this edition of Distillery, The Age’s Adele Ferguson has an inside line on CVC Asia Pacific’s efforts to keep Nine Entertainment in the tent, with Ticketek and the Allphones Arena on the chopping block.

"Both businesses are part of CVC's Nine Entertainment Co., which includes the Nine Network, digital business ninemsn and ACP Magazines. Ticketek and Allphones Arena (which owns the Acer Arena in Homebush) operate under the Nine Events umbrella and are estimated to be worth a combined $600 million, with Ticketek reflecting the lion's share of the value at between $450 million and $500 million. It is understood that next week a five-page summary of both businesses will be released to targeted companies in the media, airline and tourism industries. Early next month the investment bank UBS will begin a formal sale process.”

Staying with this journalist for the rest of this morning’s commentaries, in a separate piece Ferguson looks at the growing battle over grog between the market supermarket chains.

The Age’s Michael West delivers a comprehensive piece exploring the suing tendency of billionaires and points out that while Rupert Murdoch doesn’t have to use legal avenues due to his existing influence, Frank Lowy – not known for being a prolific suer – has recently had a go at his newspaper through Football Federation Australia. Speaking of billionaires, The Sydney Morning Herald’s Ian Verrender offers his analysis of how James Packer’s push for a Sydney casino will secure his family’s name in a way that his father couldn’t do.

The Australian Financial Review’s Chanticleer columnist Tony Boyd believes that SingTel’s restructure and purchase of the last sizable mobile advertising company, Amobee, are clear indications that the telco is seriously threatened by Google and Apple, while The Australian’s John Durie says SingTel is finally acting like the Pan-Asian telco that it could be with this new focus on digital applications.

The Australian’s Tim Boreham looks at Talent2, Phosphagenics and Coca-Cola Amatil in his Criterion column, leaning on hold, sell and hold commendations, respectively. Fairfax’s Insider columnist Ian Verrender finds what could be the greatest waste of time in the history of releases to the ASX – which is saying quite a lot.

The Australian’s Peter van Onselen laments the waste of economic talent on both sides of the political divide in Canberra.

And finally for those really troubled by which way the Reserve Bank will go today, The Sydney Morning Herald’s Michael Pascoe reminds us all that business commentators can be pretty rubbish at predicting it.


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