Rate-rise still around the corner

The Reserve Bank left official interest rates steady for April but rate rises remain just around the corner, a prospect all but confirmed by RBA Governor Ian Macfarlane in a speech on Thursday night. He indicated that interest rates can be expected to rise by the end of the year but InfoChoice believes the first move will come by mid year, probably May. Mr Macfarlane said the bank’s relaxed stance recognises that any increase in rates will have more impact this time round, given that Australians have an extra $62 billion in debt since the last rise, a factor pointed out in Rate Watch last week. The steady-as-she-goes decision also appears prudent in light of the evidence out following the RBA meeting which suggest that bumper economic conditions may be about to ease. The resilient housing market has showed signs of softening with building approvals down 3.7 per cent in February, with apartments particularly in decline. Retail trade rose by a more modest 0.3 per cent in February following a 1.4 per cent rise in January. Meanwhile, the Melbourne Institute's latest quarterly bulletin predicts that Australia's economy will continue steady, if slower, growth through to mid-2003. Real GDP is forecast at 4.6 per cent in the year to March 2002, easing to 3.8 per cent in the 2002 calendar year, then 3.6 per cent in 2003. The Institute says that the inflation outlook remains favourable overall, with the underlying rate easing this half-year back to the preferred range 2 to 3 per cent. There is thus no compelling reason to raise interest rates quickly or by a large amount, it says.