Brace for March rate rise

The latest consumer borrowing figures – combined with the strong bias the Reserve Bank retains towards raising rates – means there is a fair chance that it will act with another 0.25 per cent hike on Wednesday after its March board meeting. This would take the standard variable home loan rate to 7.32 per cent.

The RBA's own credit figures for January show total credit to the private sector rose by 1.3 per cent seasonally adjusted, matching the rise of December. Over the year to January, total credit rose by 15.7 per cent. This is the highest annual growth rate since October 1989, the height of the 80s boom.

While the two interest rate rises late last year appear to have somewhat dented the growth rate of home lending, it has still been running at a high rate of 1.8 per cent or so in each of the last three months and above the levels of a year ago. Meanwhile, personal credit remains as strong as ever, climbing 1.3 per cent in January to be 14.6 per cent up on January 2003. Rabid consumer personal borrowing was also evident in last week's December credit card figures showing record spending.

These figures in themselves appear to be enough to push the RBA into action on Tuesday after its February pause. Deputy RBA Governor Glenn Stevens hinted the board remains tilted toward returning official interest rates back to neutral levels sooner or later.

The credit figures have overshadowed other data out this week suggesting more sustainable conditions elsewhere in the economy. The wage cost index grew 1 per cent in the December quarter, for 3.7 per cent annual growth for 2003. While the RBA will be concerned about where wages might be heading with low unemployment and tighter job market conditions, there is no inflation alarm in these figures as yet and they will not contribute to the case for a rate rise. Business investment is growing more modestly than it was a year ago, a 2 per cent rise in the December quarter less than was expected but still consistent with the ongoing recovery of the last 18 months.

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