JUSTICE Robert Austin has delivered a stinging rebuke to the corporate regulator for almost every step of its long, expensive case alleging breach of directors duties against One.Tel’s managing director, Jodee Rich, and finance director, Mark Silbermann.

The judge criticised the Australian Securities and Investments Commission’s decision on which directors to pursue, the breadth and complexity of its allegations, its choice of witnesses and the way it ran the case.

”It is noteworthy that ASIC’s proceedings were brought against the non-executive chairman and three of the four executive directors, and not against any of the other directors,” Justice Austin said.

The underlying concept of its statement of claim was that executive directors carelessly failed to keep the board informed of the company’s financial position.

”That leaves open the question, not before the court in the present proceedings, whether the other directors were careless in failing to find out,” the judge said.

However, he did not accept the argument put forward by lawyers for Mr Rich and Mr Silbermann that there was ”an unholy alliance” between ASIC on the one hand and, on the other, One.Tel’s largest shareholder Publishing & Broadcasting Ltd and its representative on the One.Tel board, James Packer.

The evidence was ”very thin” to support the defence claim that when ASIC realised it would need to rely on Mr Packer as a witness, ”a blind eye was turned to Mr Packer jnr’s deficiencies in his conduct as a director”.

Justice Austin did not make any adverse findings about Mr Packer’s credibility, but said he misunderstood the role of a witness.

”It seems to me that he attempted to avoid giving direct answers because of his perception that his role in cross-examination was to put his side of the case, and therefore to spar with counsel when dealing with matters that did not help his case,” he said.

Mr Packer’s co-director, Lachlan Murdoch, gave ”hazy and unspecific” evidence.

”My view is that there was a significant problem of lack of recollection in Mr Murdoch jnr’s evidence, which undermined its credibility,” Justice Austin said.

In contrast the judge was impressed by Mr Rich and, to a lesser extent, Mr Silbermann.

”Having presided over trials in the Equity Division for over 11 years, my comparative assessment of Mr Rich’s evidence in cross-examination is that he was one of the best prepared party/witnesses that I heard in that time, with a very good level of recollection of detailed facts in the witness box,” the judge said.

There were some inconsistencies and mistakes, along with memory lapses, in Mr Silbermann’s evidence.

”As with Mr Rich, it goes without saying that Mr Silbermann was an interested witness, fighting for his commercial survival, and so his evidence must be assessed with caution,” he said.

”His demeanour was somewhat more circumspect than Mr Rich’s, though I formed the impression that he was trying to answer the questions that were put to him to the extent of his knowledge.”

ASIC’s summary of Mr Rich’s performance was the basis for another criticism of its approach.

”It is somewhat unsettling that ASIC’s assessment of Mr Rich as a witness, reflected in its submissions, is so sharply at odds with my own assessment. But its critique of Mr Rich is, unfortunately, consistent with the general tendency of its submissions to exaggerate its case.”

The judge’s harshest words were directed at ASIC’s strategy.

There was ”is a real question whether ASIC should ever bring civil proceedings seeking to prove so many things over such a period of time as in this case,” he said when explaining why the case had run from 2004 until 2007 and why it had taken 27 months from the final hearing day until the delivery of his judgment.

”A case might have been brought focusing attention on One.Tel’s financial condition at a particular point in time, for example by invoking a cause of action based on the allegation that a particular One.Tel media release (for example, the ASX announcement of 4 April, 2001) was misleading”.

The judge noted that ‘’such a case” was recently brought by the regulator against the directors of James Hardie.

That suit, which the regulator won, took 44 hearing days, compared with One.Tel’s 232.

”I do not mean to express an opinion about the likely outcome of such a case, if ASIC had brought it, and I note that if such a case had been brought it might have been against a differently constituted group of defendants, perhaps the board as a whole,” the judge said.

”Instead, we have had a case which seeks to prove the financial condition of a large multinational corporate group with various businesses, some in start-up mode and some more established, over a period of four months, with a view to establishing not one but many breaches of the statutory duty of care and diligence. I wonder whether that is beyond the bounds of reasonable scope of civil litigation.”

The chief reason ASIC lost the case was its failure to prove the ”true financial circumstances” of One.Tel between February and May 2001, when the board called in administrators.

For example, a central plank of the case was that One.Tel’s liquidity declined drastically during that time.

It tried to prove this by relying on evidence solely about the Australian operations, although One.Tel’s liquidity was measured and managed on a group basis including international operations.

”That is like trying to establish that the available water supply in the Sydney basin is diminishing, by proving declining water levels in every dam except the Warragamba,” the judge said.

”It may be shown that the water levels in the other dams are falling to dangerously low levels, but (hypothetically) it is possible that Warragamba is full to overflowing.”

When ASIC tried to prove that One.Tel was running out of cash, the documents it put forward were ”wholly or in part, too unreliable to form the basis for financial findings”.

ASIC then failed to call witnesses who might have explained the documents and their status. The defendants, who did not bear the onus of proof, were able to advance plausible alternative explanations for what had occurred ”and ASIC failed to prove its case to the appropriate civil standard, having regard to the presence of those alternative explanations”.

For example, Mr Rich was entitled to believe that sufficient financial support would be forthcoming from One.Tel’s largest shareholders, News Ltd, PBL and PBL’s parent company Consolidated Press Holdings, the judgment says.

”It seems to me there was every reason for Mr Rich to believe, on the basis of Mr Packer jnr’s words and conduct, that PBL/CPH would support One.Tel through any temporary liquidity issues, and also that Mr Packer jnr could persuade News to join in providing any such support,” Justice Austin said.

”On the basis that this is the correct assessment of the level of support available to One.Tel from its two major shareholders until late April or May 2001, it seems to me there was a reasonable foundation for Mr Rich’s belief that further financial accommodation could be obtained from Toronto Dominion, if that were to be regarded as the most effective funding option.”

This situation changed when the late Kerry Packer ”formed the view, at some time around 19 April, that One.Tel would run out of cash”.

Another section of the judgment complains of ”a gap in ASIC’s evidence about May 2001 and in particular, the significance of the PBL report presented to the board on 28 May and the circumstances surrounding what appears to have been a substantial change in the [PBL] analysis between about 8 May and 28 May, of a kind that required explanation from a witness such as [a PBL executive].”

When the case closed in August 2007, Justice Austin commented it had become ”a very unusual case in the extent to which the court is invited to make findings of a financial kind on the basis of financial documents”.

ASIC will now have to hope it remains an unusual case.

Its chairman, Tony D’Aloisio, had little comment yesterday beyond saying he would review the 3105-page decision in detail.

‘The case has also provided important guidance to ASIC on how to run similar matters in the future,” Mr D’Aloisio said.

Source: The Age

THE AUSTRALIAN Tax Office’s move against private equity outfit TPG over an alleged tax avoidance scheme using a company based in the Cayman Islands to minimise tax has implications for the Federal Government’s $61 billion Future Fund.

Five Cayman Islands subsidiaries were revealed in the Future Fund’s latest annual report, tabled in Federal Parliament late last month, the Herald Sun reports.

The fund and a raft of Australian corporates continue to use companies registered in countries on the ATO’s tax haven hit-list despite public warnings from the ATO and a worldwide crackdown on the use of tax havens in response to the global financial crisis.

On Wednesday the ATO slapped a $678 million tax bill on two TPG companies in Luxembourg and the Cayman Islands and took court action in an attempt to freeze the $1.5 billion the private equity group earned from the float of department store Myer.

Caught up in the freeze was about $135 million belonging to the Myer family, which will tomorrow launch a legal bid to recover damages and compensation from the ATO.

The freeze was lifted after a day, but the family aims to recover costs including interest, legal expenses and the cost of arranging temporary finance facilities.

An ATO booklet on tax havens, last updated in June, contains a specific warning about the use of tax havens in private equity deals such as TPG’s November 2 float of Myer.

“The use of tax havens in some large private equity deals may require monitoring of the payments made to general partners of the equity investing vehicles to determine, among other things, whether some part of the profit is properly attributable to Australian enterprises,” the ATO said.

It also gave a general warning about the use by big business of related companies in 28 tax havens with “secretive tax or financial systems” including the Cayman Islands, where the Future Fund set up five subsidiaries last financial year.

“The Fund seeks to maximise after tax returns and, where it is legitimate to use a structure which protects the claim to sovereign immunity, this path has been taken,” the fund said in its 2008-2009 annual report.

It said it was committed to “full transparency and information exchange for tax purposes and compliance with all relevant laws”.

“Importantly, the Fund does not invest in schemes and arrangements that use secrecy laws to conceal assets and income that are subject to tax.”

Other Australian companies using tax haven structures include Astro Japan Property Trust, formerly Babcock & Brown Japan Property Trust.

The listed trust, which is now independent of failed investment bank Babcock & Brown, holds its Japanese properties in a complex structure that uses five companies registered in the Cayman Islands.

Voting stock of four of the five companies is held by an unnamed Cayman Islands charitable trust, Astro’s latest annual report shows.

The arrangements are “designed to assist in achieving bankruptcy remoteness” for Japanese companies within the Astro group, the report says.

Australia’s banks and insurers also have presences in tax havens, with the NAB, the Commonwealth Bank and the ANZ maintaining branches in the Cayman Islands, while insurance giant IAG has three subsidiaries in Gibraltar and one in Mauritius.

Richard Gluyas - The Australian

COMMONWEALTH Bank is reaping the rewards of its “post-box” banking operation in low-tax Malta, booking a $55 million benefit last financial year from lower offshore tax rates.

The benefit was almost double its nearest big four rival, suggesting that the structure set up by CBA in the Mediterranean island nation is generating tens of millions of dollars in tax benefits, The Australian reports.

Malta is no longer regarded by the Australian Taxation Office as a tax haven, but was blacklisted as such earlier this year in proposed US legislation that was co-sponsored by Barack Obama when he was a senator.

The CBA holding company Newport, which has a $5 billion balance sheet, is domiciled in Malta.

Newport, in turn, owns CommBank Europe, which has held a Maltese banking licence since 2005, employing a total of six people, including clerical staff and executives.

CBA chief executive Ralph Norris defended the Malta structure at last Monday’s September quarter trading update.

“Malta is a bona fide country of operations into Europe,” Mr Norris said.

“We have a very significant amount of lending into infrastructure and the like in Europe, and because it’s euro-denominated and funded, it’s not the way we could operate out of London.

“Certainly it does have a lower tax rate, but so do places like Hong Kong, Singapore and the like, and also the offshore banking unit here in Australia.”

The tax efficiency of the structure is revealed in CBA’s 2009 annual report, which shows a $55m benefit from overseas tax rate differences, up from $35m the year before.

The Malta operation, featuring the bank’s head of tax, Chris Millett, as a Newport and CommBank Europe director, is believed to have been pronounced technically sound by the ATO.

Westpac today announced they are leading the way in the banking sector in supporting the Australian Government Green Loans Program and offering an interest free Green Loan¹. The industry-leading move will provide homeowners with a real opportunity to improve their energy and water use efficiency.

The average Australian household produces approximately 13 tonnes of greenhouse gases each year, enough to fill over 700 balloons each day. The Green Loans Program assists families to install solar, water saving and energy efficient products to reduce greenhouse gas emissions.  It also has the potential to help around 360,000 Australian households save on energy and water bills.

Peter Hanlon, Westpac’s Group Executive for Retail and Business Banking, is a keen supporter of a program that helps Australians take actions toward an environmentally sustainable future.

“We are delighted to work alongside the Federal Government to deliver this important initiative which I’m sure many will agree is a vital investment in our future.

“Sustainability is an integral part of Westpac’s business strategy, having already reduced our emissions by 40% between 1996 and 2008 with a further reduction of 30% targeted by 2013. We will continue to develop innovative new products and services which meet emerging consumer needs on these issues.”

The bank has been working with the Federal Government for the last six months to offer the new Green Loan.  Over 35,000 Australians have already taken advantage of the free home assessment provided by the government, valued at over $250 each.  Westpac’s Green Loan can be used to make the changes recommended in the home sustainability assessment report, giving the opportunity for homeowners to save on the cost of energy and help to minimise water usage.

“Many of our customers choose to bank and invest with Westpac because they share our views on sustainability,” said Mr Hanlon.

“We believe it is important to educate and assist our customers to take responsible actions towards creating an environmentally sustainable future,” he concluded.

Westpac’s new Green Loan will be available from 16 November 2009.  It includes no monthly service fees, establishment fee or prepayment fees and it is interest free, repaid over a maximum of four years.  More information on Westpac’s new Green Loan is available from our website.

The free home sustainability assessment is the first step in qualifying for an interest-free loan of up to $10,000 over four years.  A qualified home sustainability assessor visits the household and investigates energy and water consumption patterns to identify actions that households can take to save energy and water.  Each household then receives a tailored report outlining recommended actions ranging from small things like switching to energy efficient light bulbs to larger scale changes such as installing rainwater tanks and solar panels.   Households may wish to access a green loan to make the larger scale improvements.

Westpac’s commitment to reducing emissions includes:

• saving 310 tonnes of paper by offering customers electronic statements.
• establishing a five year climate change strategy focused on greater engagement with employees, suppliers and customers.
• sustainable purchasing policies for fleet vehicles, paper and IT equipment.
• In addition to the reduction of our emissions by 40% between 1996 and 2008, with a further reduction of 30% targeted by 2013.

¹ to a maximum of $10,000.

Close The Australian sharemarket rallied today, led by gains in financial stocks on a strong trading performance by Commonwealth Bank and a takeover offer for AXA Asia Pacific.

At the close, the benchmark S&P/ASX200 index was up 80.9 points, or 1.8 per cent, at 4674.9, while the broader All Ordinaries gained 82.1 points, or 1.8 per cent, to 4686.5.

Financial stocks gained 2.1 per cent, while energy stocks were up 1.3 per cent and the materials index was 1.6 per cent higher.

Macquarie Private Wealth adviser Helen Spencer said the market put in a stunning performance given a lacklustre lead from Wall Street.

‘‘We certainly seem to be unwinding some of the negativity of the last couple of weeks and the consolidation we have seen,’’ she said.

AXA was the best performer in the index today, jumping $1.40 or 32.6 per cent to $5.70, as the market speculated on the prospect of an increased takeover offer after AXA rejected an $11 billion proposal.

“The local share market has once again been buoyed with the onset of further merger and acquisition activity, this time with AMP making a bid for fund manager and insurance company AXA,” said CMC Markets analyst Matt Lewis.

“Any corporate activity is viewed favourably by the market as a sign that the worst is behind us and that many company balance sheets have been recapitalised and may be looking attractive to corporate raiders.”

CBA books strong profit rise

Financials led the market higher with Commonwealth Bank’s shares rising $2.37 or 4.5 per cent to $55.08 after Australia’s biggest lender booked a 27 per cent increase in quarterly cash earnings as the wealth division benefited from surging equity markets.

Ms Spencer said the bank’s first quarter result beat expectations and the the share price of its rivals benefited from CBA saying the bad debt cycle had most likely peaked.

National Australia Bank gained 85 cents, or 3 per cent, to $29.60, ANZ added 26 cents, or 1.2 per cent, to $22.66 and Westpac fell 27 cents, or 1 per cent, to $26.28.

The market was also buoyed by a bigger than expected rise in home loans in September, driven up by first-home owners rushing in to secure loans before the government cut back its boost to the first-home owner’s grant.

Record gold price lifts sector

‘‘Resources certainly helped improved the market today but really it was in the banking and financials (that were) the major beneficiaries,’’ Ms Spencer said. ‘‘Gold stocks fared very well with the continued increase in the gold price.’’

Lihir Gold put on 10 cents or 3.02 per cent to $3.41, Newcrest Mining jumped $1.22, or 3.6 per cent, to $35.30 and Newmont gained 14 cents, or 2.7 per cent, to $5.31.

Myer fails to gain

Consumer discretionary stocks gained 2.2 per cent, with most retailers making solid gains except for newly listed department store group Myer.

Myer eased 1 cent to $3.76, while rival David Jones jumped 21 cents or 3.8 per cent to $5.68 and Harvey Norman gained 17 cents, or 4.1 per cent, to $4.28.

Media stocks were in the spotlight after Seven Network executive chairman Kerry Stokes said he would like to buy Foxtel but doubted that Telstra would ever offload its stake in the lucrative pay-TV business.

Seven’s stock added 5 cents to $6.40, while Telstra firmed 3 cents to $3.23.

Elsewhere in the media sector, television broadcaster Ten Network said it was in a strong position and media remained an exciting and relevant sector.

Ten’s stock gained 1.5 cents to $1.53, while Fairfax Media jumped 4.5 cents, or 2.8 per cent, to $1.65 and News Corp added 14 cents to $15.55. News’ non-voting scrip advanced 13 cents to $13.28.

Elders was the top traded stock by volume, with 99.72 million shares traded for $17.38 million. Its shares gained 0.5 cents to 17.5 cents.

Preliminary national turnover reached 2.52 billion shares, traded for a value of $5.73 billion, with 723 stocks up, 379 down and 324 steady.

Further gains seen

Analysts said further gains for the stock market were likely after the recent consolidation, when it dropped 8 per cent from the intraday peak on October 15 to last week’s intraday low.

“There is still plenty of cash sitting on the sidelines, meaning equity markets can continue to push higher before moving into outright expensive territory,” said Andrew Pease, investment strategist at Russell Investments. “Many investors who panicked and dropped out of the market in March are yet to return.”

“For the time being, though, the need to unwind the large monetary policy stimulus in a ‘timely’ manner now that the risk of serious economic contraction has passed will be the primary concern of the RBA,” said Joshua Williamson, analyst at Citi. “We expect a steady stream of 25 basis point rate increases to 4.50 per cent by the end of the second-quarter of 2010.”

AAP, with BusinessDay

Commonwealth Bank of Australia says it can’t guarantee that increases in its home lending rates won’t exceed those made by the Reserve Bank.

All big four banks have said that variable mortgage rates may have to rise faster than the Reserve Bank of Australia’s rate increases because of funding pressures.

‘‘If we have to move standard variable above the OCR (overnight cash rate) then we will have to do that,’’ chief executive Ralph Norris said in a phone conference after releasing the bank’s September quarter earnings update. ‘‘We’ve seen significantly higher levels of term deposit rates.

‘‘If you look at wholesale margins, they’re still significantly up over where they were two years ago.’’

He said the RBA’s cash rate no longer set retail or wholesale rates in the way it used to before the financial crisis started two years ago.

CBA, the country’s biggest home loan lender, and the other three major banks last week increased their standard variable mortgage rates by 25 basis points after the Reserve Bank raised the cash rate by the same amount.

The big four banks did the same in October after the RBA’s 25 basis point increase at the time.

Mr Norris said deposits, one of the major sources of bank funding, were were now 0.75 to one percentage point more expensive for bank than before the global financial crisis.

CBA chief financial officer David Craig said it would take another 18 months before the average cost of wholesale funds stopped rising.

Wholesale funding is sourced from fixed interest investors here and overseas.

The average cost of funding has been rising for banks as they roll over cheap term debt sourced before the global financial crisis with more expensive borrowings.

While the cost of debt has fallen from the extreme highs at the height of the crisis, the cost is still higher than two years ago, which continues to raise the average cost.

The average term debt before the financial crisis was 3.6 years, with some of that having a maturity of five years, Mr Craig said.

‘‘So we’ve got five years from the beginning of the crunch before the last of the cheap stuff’s gone,’’ Mr Craig said.

The cost was likely to stabilise about three and a half years after the start of the crisis, he said.

CBA was criticised in June after it raised its variable rate by 10 basis points because of margin pressures.

After the increase it still had the equal lowest rate to rival National Australia Bank. Before the increase, CBA’s rate had been the lowest among the banks.

Since then, the RBA increased its cash rate twice by 25 basis points in October and November, taking its benchmark rate to 3.5 per cent.

AAP

Home-loan demand jumped at its strongest pace in six months in September as first-home buyers rushed to take advantage of generous government handouts, keeping the market on edge for a possible rate hike next month.

The strength of the housing market was backed up by figures that showed lending for construction for new homes in September rose to its highest level in about 15 years.

Still, a private-sector survey said there was a pullback in the jobs market in October after steady gains in the past two months, pointing to some downside risk for official employment data due this week.

“For the time being, though, the need to unwind the large monetary policy stimulus in a ‘timely’ manner now that the risk of serious economic contraction has passed will be the primary concern of the RBA,” said Joshua Williamson, analyst at Citi. “We expect a steady stream of 25 basis point rate increases to 4.50 per cent by the end of the second-quarter of 2010.”

The Reserve Bank last week raised the cash rate by a quarter of a percentage point to 3.50 per cent, tightening policy for the second straight month and going further than any other central bank in the Group of 20 to raise rates since the global financial crisis escalated last year.

Implied rates, based on money market and swap rates, are pricing in a 70 per cent chance of a quarter percentage point rate rise next month, up from around 56 per cent last week. They showed little reaction to the data.

The dollar rose on the back of the the housing numbers, closing today at 92.5 US cents, more than a cent higher than on Friday.

Over the next 12 months, markets are pricing in nearly 170 basis points of rate increases. That would take the cash rate to around 5.25 per cent – a level widely seen as neutral or the “normal” cash rate.

The central bank has already voiced concerns that keeping rates too low for too long could give rise to a housing bubble. The solid demand for homes in the past year has been attributed to strong population growth and mortgage rates at 50 year lows.

Government data on Monday showed the number of home loans jumped 5.1 per cent in September, the biggest rise since a 5.3 per cent increase in March. The result easily beat forecasts for a 3 per cent rise and came ahead of an imminent phasing out of a generous government handout to first-home buyers.

First-home buyers accounted for more than a quarter of total loans in September.

While analysts say a halving in the government grant to $7000 from October 1 onwards and tighter monetary policy will ease home loan demand, builders appear optimistic.

Lending for construction to build new homes jumped 8 per cent in September to $7.2 billion, its highest level since December 1994.

“The scene is set for a housing construction boom,” said Andrew Hanlan, senior economist at Westpac. “The upswing, to kick-in from late 2009, will be a key growth engine of the Australian economy through 2010.”

Jobs data crucial

A resilient jobs market has also supported the housing sector.

While the jobless rate in the United States jumped in October to a 26-year high of more than 10 per cent, the jobless rate in Australia is 5.7 per cent.

The official employment report due on Thursday is expected to show the jobless rate edged up in October to 5.8 per cent as the economy shed 10,000 jobs in payback for September’s stunning gain of 40,600.

A survey by ANZ out today showed job advertisements in newspapers and on the internet dipped in October, ending two months of gains. Ads were down 42.3 per cent on October last year.

“These results highlight that the recovery of the Australian economy is still vulnerable to setbacks,” said Warren Hogan, acting chief economist at ANZ. “In the near term, we do not expect to see much improvement in the official labour market statistics.”

Hogan noted job advertising tended to lead actual employment outcomes by around six to nine months. As such, he expected a broadly steady jobs market over the course of the southern hemisphere summer with a further small increase in the national unemployment rate to just above 6.5 per cent in mid-2010.

Still, another strong jobs report on Thursday would raise the risks of another rate increase in December. On the other hand, a weak report could put the central bank on hold till next year.

“The employment data, if unexpectedly soft, could be enough to trigger a pause in December,” said Stephen Walters, chief economist at JP Morgan.

Reuters

Reporter: David Richardson – Broadcast Date: November 04, 2009

The Reserve Bank again lifted the official interest rate and the experts predict the only way is up but is there a way to bring your payments down?

The big four banks have cornered 90 per cent of the new mortgage market but staying with them could be costing you a fortune.

Shaun Cornelius from Infochoice has compared the big banks offers against the non-bank lenders.

“When we summed up the potential savings we came up with the number of around $6.1 billion per year, that’s interest and fees that they could be saving in a year,” he said.

“Generally the big four are less competitive than what they were however they’ve picked up market share.

“Average potential savings per customer we calculated at around $3,800 per year.”

Infochoice identified four non-bank lenders as the cheapest home loan companies around, State Custodians, Ratebusters a purely online mortgage provider, Home Start a provider set up by the South Australian Government and My-Rate.

Kevin Sherman is from My-Rate, they operate from small offices in the city with lower overheads and no branches to run.

It can afford to undercut the banks on a standard variable home loan.

“If you consider we’re about 1 per cent cheaper and you actually run the numbers on a standard home loan of around $300,000, consumers could save around $80,000 off the life of their loan,” he said.

“Or pay it off three-and-a-half years sooner.”

In credit cards MECU, one of the country’s largest credit unions came top, with its low rate Visa card at 9.14 per cent.

Bankwest Lite MasterCard was a close second at 9.99 per cent.

But if person loans are what you want, Infochoice ranked the Hunter United Credit Union’s new car loan number one.

The Australian Central Credit Union at 7.86 per cent for a new car loan was close behind.

“In fact there was a 34 per cent difference in terms of that savings potential including fees and interest on car loans,” Shaun said.

Home owners will have to find an extra $50 a month for an average loan of $300,000 and with interest rates likely to go only one way up, it is time to look around.

RBA emergency rate level lifted 25 basis points to 3.25 per cent.

The Reserve Bank of Australia today raised the official interest rate from its lowest-ever point, amid signs of a strong local recovery.

The move is in stark contrast to last year, when the RBA joined the rest of the world in slashing interest rates to confront a rapidly escalating global financial meltdown.

The dramatic action saw the official cash rate plunge to a 49-year low of 3 per cent.

This marks the first rate rise since March last year.

How will the rate rise affect you?
We all feared a rate rise was on its way. We ask our finance expert how the lift will affect you.

Does this mean the ‘emergency’ is over? Last week’s better-than-expected retail sales figures from the ABS and yesterday, ANZ job advertisements rose 4.4 per cent in September.

Economists from JP Morgan and Macquarie Group predicted that the RBA board would approve a rate hike today.

Today’s interest rate rise could mean a back-to-back affair, with a follow-up in November on Melbourne Cup day.

Housing bubble

There have been reports that the RBA is primarily worried about a housing bubble and wants to increase rates to pull prices in. But not everyone agrees.

Stephen Koukoulas, chief global strategist at TD Securities, says RBA governor Glenn Stevens has a bee in his bonnet about housing.

He has written an open letter to the RBA board arguing against the rate hike.

Mr Koukoulas warned that premature action could risk a “double-dip recession”.

“When you look at things like full-time employment, you look at what’s happened to consumer spending now that the fiscal stimulus measures are starting to fade,” he said.

“And again you look at what’s happened to the export sector and the very overvalued Australian dollar.

“This interest rate hike could really run the risk of whether you call it a double-dip recession or a W shaped growth performance, there’s a real risk that the Australian economy could buckle under a premature tightening in policy.”

Treasurer Wayne Swan remains cautious about the economy.

“We know the global economy is fragile. That is why everybody needs to work together in this environment.”

A CHORUS of business leaders, led by Aussie chairman John Symond, has pleaded with the Reserve Bank to take baby steps in its push to raise interest rates away from “emergency levels”.

The RBA stands to cripple thousands of homeowners if it raises official interest rates too rapidly, in increments of more than 0.25 per cent, or by lifting rates above five per cent within a year, the home loan tsar told business leaders in Sydney yesterday.

The Reserve is expected to lift its cash rate by 0.25 per cent, to 3.5 per cent, today with economists now ruling out the previously predicted “shock and awe” 0.5 per cent hike.

Relatively flat inflation figures, combined with further instability on global sharemarkets, have even raised the slim prospect of rates remaining on hold.

Despite the softening economic environment, with the Reserve regularly stating the need to quickly move rates towards more neutral levels of 5 per cent, economists are now banking that official interest rates will hit 4.25 per cent within six months.

Mr Symond told the Australia-Israel Chamber of Commerce such a rise would hurt the vulnerable.

“Hopefully Glenn Stevens follows through with only gradual increases,” he said. “That’s all we need. Let’s hope they don’t follow through with increases as dramatic as they cut on the way down.

“An increase of 1 per cent over time is not going to make much difference, but 2 per cent and from there on, there are going to be a lot of people lose their homes.”

His sentiments were backed up by the Australian Retail Association. Executive director Russell Zimmerman said retailers were calling for calm from the Reserve and a hold on rates till next year to allow the sprouts of economic recovery to bear some fruit.

“Retailers are concerned that interest rate rises now could slow down the wheels of economic recovery that are just starting to turn. Retailers are looking for a bit more momentum before higher interest rates start to take cash away from consumers,” he said.

Although higher interest rates will hurt its business, Myer was left licking wounds of a different kind yesterday. The department chain, fronted by fashion icon Jennifer Hawkins, relisted its shares on the Australian sharemarket on a day of heavy selling across the board.

Myer’s shareholders, which include Hawkins, saw their initial investment in the company drop a staggering 8.5 per cent in minutes.

Meanwhile, billionaire property developer Harry Triguboff suggested that interest rates need not be on pause, but should be clipped further to levels in the UK and US.