Rate rise coming, needed or not

Australian home loan borrowers should be prepared for variable mortgage rates to go up 0.25 per cent this Wednesday. It is likely the board of the Reserve Bank will opt for a third increase in official interest rates this year. With headline inflation at almost 4 per cent and underlying inflation at 3 per cent, price pressures will be the cause of some discomfort at Martin Place. Although the RBA is unlikely to be persuaded, there is some evidence that suggests inflation may already be at its peak and a rate rise might be not be needed - the May and August hikes may now be kicking in. The RBA's own credit figures show a moderate slowing in the rate of growth in borrowing for housing in recent months while overall credit growth appears to have come back to a more sustainable 1 per cent per month level. Retail sales for September fell and confirm a slowing trend in recent months. Against this, building approvals jumped up in September to be 9 per cent higher than a year ago, and adding to a broad upward trend in recent months. On the international scene, there is more evidence that the US economy is slowing down, which would detract from inflationary pressures around the world next year. So there is a case for the RBA to hold off on a rate rise in November, but the hawkish stance already established by new governor Glenn Stevens suggests he will take no chances where inflation is concerned.