Put to one side concern that the Reserve Bank of Australia is suffering from relevance deprivation syndrome and its clear message was extreme caution about the immediate outlook for the Australian economy.
Some might express concern about the impact of the package in creating a housing bubble, but RBA governor Philip Lowe is more worried about a collapse in house prices.
He cited falling rents, falling population growth, high unemployment and high vacancy rates as all combining to put pressure on home prices, not the reverse.
Unemployment is the bank’s major focus and an attempt to create some sort of stability to encourage investment which is sorely needed.
Savers were told clearly they had to take one for the team and understand the whole of economy impact of his measures. His only offer was sympathy.
The clear message to the federal government is the RBA is supporting its present policy but importantly thinks that the policy may need to stay in place longer and be more targeted to increase investment.
The need for actual productivity-boosting policy is clear.
The obvious question unanswered from a frank and open press conference was what impact the package will actually have on the economy.
Westpac’s Peter King said it would help keep the Australian dollar down and that was a clear target.
ANZ’s Shayne Elliott said last week the policy would have little impact, saying money was virtually free now so making it “freer” wasn’t going to help people spend more.
Both ANZ and Westpac reported weak business borrowing and this package isn’t going to lead to a rush to the banks, but over time it might help.
The package at face value is disastrous for banks with already weak margins hit further, and if you think profitable banks help the economy then the RBA did its best to make them unprofitable.
Asked about banks passing on the rate cut Lowe said obviously he would like that but, like the government, urged customers to demand better rates or go to another bank.
None of which is particularly helpful for the banks.
The $100bn bond purchase program will mean the Reserve Bank will own 15 per cent of all bonds against 20 per cent by the US Fed and 40 per cent by the New Zealand central bank.
As a percentage of GDP it is 5 per cent against the Fed at 37 per cent of US GDP.
The federal government bond issuer, the AOFM, faces a trickier time now the RBA is getting involved in five and 10-year bonds with the impact that more demand will increase prices and push yields down.
This may push foreign buyers away from the local market which is meaningful when you consider the latest six year note at 54.4 per cent offshore demand, including 28.8 per cent from Asia ex Japan, 11.6 per cent from the UK and 9.7 per cent from the US.
Less foreign support will negate any proposed benefits in terms of lower yields.
While the Reserve Bank’s package of measures was based on a gloomy outlook its actual forecasts were not out of line with those in the market, with unemployment to peak at 8 per cent rather than 10 per cent, and growth of 6 per cent this financial year and 4 per cent in the year to June 2022.
That‘s not disaster territory but Lowe said interest rates would stay on hold for three years and while inflation will return it will take its sweet time which means the recovery will be longer and slower.
Payments stoush
A major battle has started in the $1.2 trillion payments system with Eftpos boss Stephen Benton taking on the Reserve Bank’s efforts to combine the different systems into one.
The RBA has proposed putting its digital new payments platform together with Eftpos and the big bank-controlled BPay under one roof, but Benton is resisting.
He is already regulated by the RBA but wants to be free from control by the big four banks.
On Tuesday, Benton unveiled his latest acquisition, Beem It, which is an app owned by Westpac, CBA and NAB and allows you to transfer money without having to go into your own bank’s web system.
Last week he partnered with fintech Verrency which is a loyalty program for Eftpos users.
Beem It is a direct competitor to the RBA’s new payments platform.
Having acquired the new digital services Benton needs to link with one of the big supermarkets to boost his customer base via Beem It.
Eftpos is owned by all the big banks, credit unions, Coles, Woolworths and others and it doesn’t want to be put under the control of the RBA.
Benton’s fight comes as the federal government has established an inquiry under Scott Farrell into the payments system.
The inquiry runs from October to April next year and the Treasury-inspired program runs at the same time as the RBA review into the systems merger.
Ironically enough the Australian Payments System boss overseeing the merger is Robert Milliner, who used to be the chief executive of Mallesons where Farrell is a present partner of the now named King & Wood Mallesons.
Farrell is a payments guru who also helped implement the Productivity Commission’s report on consumer data rights. This is the empowerment of consumers to control their own bank, energy and other data to open the way for more competition.
The concern is just as this is happening the RBA is trying to shut down competition by merging Eftpos with its own successful digital new payments platform and the big bank-controlled BPay system.
All of the above facilitate how your money is transferred and traditionally the big bank control of the system has blocked competition in financial services.
McLean Roche’s Grant Halverson argues: “The once-in-a- generation opportunity is to develop the lowest cost, real time digital payment system for Australia — not replicate the current Anglo/US expensive legacy system with its entrenched four bank oligopoly and current high prices.
“When I look at the current political landscape I am concerned — the banks have been busy unwinding most of the Hayne royal commission — is this another step?”
Benton hasn’t declared war on the RBA’s Tony Richards who is overseeing the merger plans but the battle lines are now more firmly drawn and it’s game on.
Lion on the line
Next Tuesday, bids are due on the Lion sale of its dairy assets, almost a year to the day it reached agreement with China’s Mengniu for the sale at $600m.
The Mengniu deal was blocked by Treasurer Josh Frydenberg even after clearing its $1.5bn acquisition of Bellamy’s.
The known bidders are Bega, Saputo and Tanarra Capital which are all hoping to pay less than the $600m on the table. The assets include the best chilled supply chain after Coca-Cola Amatil, as well as Pura milk, Dairy Farmers, Daily Juice and Berri.
The Saputo bid is subject to FIRB and ACCC clearance.
Bega has a milk joint venture with Lion in the ACT and is considered the favourite which may mean an equity raising.
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