Bigger rate rise possible

Buoyant economic figures released yesterday reveal unexpected growth, leading to predictions that the official interest rate could rise by 0.5 per cent this week. The national accounts for the March quarter, to be released tomorrow, are expected to show stronger-than-expected economic growth of about 5 per cent in annual terms.

Building approvals have undergone a surprise resurgence, rising 5.3 per cent in April after a 7.7 per cent rise in March, following six months of falls. This has thrown doubt on the general assumption that the building sector is faltering due to the reduction of the first homebuyers' grant for new houses. Other signs of the economy's strength include strong business indicators, covering sales, profits and the levels of stocks held in inventories. The ANZ survey of newspaper advertisements for jobs also showed continuing strength in the labour market, once adjusted for the effects of Easter. In manufacturing, the Bureau of Statistics reported sales were up by 2.4 per cent in the March quarter, a 5.5 per cent rise for the year.

Any doubts that interest rates would not rise again this week have been dispelled by the new figures, economists say. The market was expecting a rise of just 0.25 percentage points, says BT Funds Management's Chris Caton, but there must now be chance that it's going to be by half a per cent.