Further rate rise may be on the horizon

Housing finance figures for March show that borrowing for housing grew quite strongly in the first quarter of this year, lending weight to the Reserve Bank's decision to raise interest rates this month. And after the Budget, the question now is whether or not rates will have to go up again this year.

Loans for investors rose 2.5 per cent in March, while those for owner-occupiers rose 0.6 per cent for an overall rise of 1.2 per cent. Together with the RBA's own credit figures, the picture is of an upward trend in borrowing since mid-2005 from levels that were still robust compared to historical averages.

Clearly, the lift in family payments and cuts in income and superannuation taxes in the Budget also put the rate rise in a more prudent light and one wonders whether these weren't a big factor in the RBA's decision. After all, the head of Treasury sits on the RBA board and would have been sitting at the RBA monthly rates meeting last week with full knowledge of the impending tax cuts announced by Peter Costello.

It seems the Budget tax cuts are of a magnitude that increase the chances of further rises in interest rates this year – despite the fact the RBA has forecast that underlying inflation will stay within its target range this year.

The measures of consumer borrowing and spending will be closely watched in coming months for signs of how much of the Budget stimulus is finding its way to the cash registers. And to what extent it offsets the drag from high petrol prices. This is the key to whether rates go up again.