Case strong for August rate rise

It appears the time has come for interest rates, with a high chance that the Reserve Bank will raise official rates by 0.25 percentage points in the coming week in an early strike against inflation. The RBA is on record as saying it expects inflation to accelerate into 2008 and the low March quarter inflation result only gave it more time to assess that threat. Well, more time has only revealed that the inflation jumped back up in the June quarter more quickly than had been expected, making the last inflation forecasts by the RBA looking too low now. And there are plenty of economic indicators currently adding weight to the threat of rising inflationary pressures. The RBA's own figures on private sector borrowing can only serve to strengthen the case for a rate rise. Housing, personal and business credit all showed sizeable jumps in June, a phenomenon very rare in these figures. Overall credit growth was 1.8 per cent in June for an annual rate of 15.4 per cent after being steady in the 14 per cent range over the last year. A massive 3.6 per cent rise in personal credit must be a one-off but housing and business borrowing also recorded the highest monthly growth in some years. Add to that strong June figures for building approvals and retail sales, set it all against a background of record business investment, a strapping rate of job creation and a recovering rural economy and there is little to stand in the way of higher interest rates. The RBA might be concerned about the instability on share markets but what we've seen so far won't be enough to ward off a rate rise. A 0.25 per cent rate rise would add an extra $17 to monthly loan repayments for every $100,000 in borrowings.