Fed: More reasons for rate rise ahead of RBA meeting

AAP General News (Australia)
04-28-2006
Fed: More reasons for rate rise ahead of RBA meeting

By Shane Wright, Economics Correspondent

CANBERRA, April 28 AAP - Increased borrowing by businesses and consumers, and signs
of life in the housing sector may be enough to persuade the Reserve Bank to lift rates
next week.

New figures out today have only clouded the decision the Reserve Bank board faces as
it tries to balance the strength of the economy with signs of a break-out in prices.

The latest private lending figures showed an increase in private sector credit of 1.2
per cent in March, and an annual rate of 14.3 per cent - an 18 month high.

Business credit growth hit a 16-year high of 17.3 per cent, but personal credit was
up 10.6 per cent.

Housing credit was up 13 per cent over the past 12 months, well down on its five-year average.

The Housing Industry Association's latest home sales figures showed signs of a recovery
in that sector, with an increase of 5.2 per cent in sales during March.

New house sales increased 4.2 per cent, while sales of multi-unit dwellings were up
13.5 per cent - the second consecutive monthly rise.

Sales were up 24 per cent in Victoria alone, but more importantly there was a 12 per
cent increase in NSW which had been dragging the rest of the nation down.

With analysts split on whether the Reserve Bank will lift official rates by a quarter
of a percentage point on Wednesday morning, the latest information also had economists
confused.

NAB senior economist David de Garis said the figures added to the case for an interest rate rise.

"Recent solid household borrowing is consistent with the pick up in consumer spending
and sentiment, including from more stability in the housing market, amplified in today's
home sales data," he said.

"The credit data is evidence of monetary conditions that remain conducive to growth
and borrowing. The rotation in growth towards business credit is consistent with the strong
pace of business investment and not necessarily an ongoing concern for inflation as it
will be associated with new capacity coming on stream."

But Commsec chief equities economist Craig James said the credit figures added to the
case for the Reserve Bank to take its finger off the interest rate trigger.

"Housing and personal lending are well restrained while businesses are borrowing in
order to finance investment in new buildings and equipment," he said.

"Higher levels of productive capacity should lead to less pressure on costs, thus alleviating
inflationary pressures.

"Simply, the lift in business lending and investment is not something to be punished
via higher interest rates but a development to be encouraged."

Not surprisingly, Housing Industry Association chief economist Harley Dale said an
interest rate rise would quickly kill off any signs of life in the sector.

"New home sales are clearly recovering from a weak 2004-05, but you can forget about
a continuation of that trend if households have to endure another interest rate rise,"

he said.

AAP sw/so/de

KEYWORD: ECONOMY NIGHTLEAD

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