‘US crisis, rate rise, an even bet’

SYDNEY: Outgoing Westpac Banking Corp Ltd boss David Morgan says the chance of a recession in the US and another interest rate rise by the Australian central bank are “an even money bet”.
An emotional and at one point tearful Dr Morgan told his last Westpac annual general meeting as chief executive that the Australian economic outlook remained robust and that the bank was travelling “slightly ahead of plan” so far this financial year.
“I had always felt that there was going to be a serious softening in the US economy,” Dr Morgan told journalists after the meeting in Sydney.
“Whether that moves into recession or not is still probably an even money bet.”
The US Federal Reserve this week cut its federal funds rate by a quarter of a percentage point in a bid to give the US economy a boost. But financial markets were disappointed because they expected a 50 basis point cut was warranted to insulate the US economy from the threat of recession.
Dr Morgan repeated comments made in November that Australia would be “reasonably insulated” from a US slowdown because its growth was now more aligned to Asia.
The Reserve Bank of Australia (RBA) was keeping an eye on international markets, in particular the US, as it tries to balance upside risks to domestic inflation against the slowing pace of world economic growth.
Dr Morgan said high inflationary pressures in the economy meant there was still an even chance that the RBA would lift interest rates next year.
“I think it’s still pretty evenly poised. I think probably still an even money bet,” he said.
During the AGM, Dr Morgan said the pain for the bank of higher funding costs caused by the US sub-prime mortgage crisis was being offset by a gain in market share from a so-called “flight to quality” away from struggling non-bank lenders.
But he refused to rule out Westpac passing higher funding costs on to its variable rate home loan customers by raising rates independently of the RBA. – AAP