Obstacles to rate rise fall away

The prospect of a rise in official interest rates next week has only strengthened in recent days on the back of the latest economic data from home and overseas. If not on Melbourne Cup Day, then the odds of an initial 0.25 per cent rise in variable home loan rates coming before Christmas must now be considered firm.

The biggest worry that has prompted the Reserve Bank to keep interest rates low has now all but evaporated. The struggling US economy appears to have locked into recovery mode with news that the world's largest economy grew at an annualised rate of 7.2 per cent during the September quarter, the fastest rate of economic growth in 20 years.

Back home, building approvals leapt again, up 7.5 per cent in September alone. The slide from boom construction levels at the beginning of 2003 appears to have returned to boom conditions again with approvals now running at 12.6 per cent above the same time last year. Apartments account for most of that, but houses too are strong.

Private sector credit has also posted another healthy monthly rise of 1.4 per cent led by housing and personal credit rising more than 2 per cent.

While inflation remains low and the dollar is on the rise, rapidly improving economic conditions here and overseas along with the bubble like conditions in the housing market mean the risks to our economy now lie on the upside. If this is what the Reserve Bank board concludes on Tuesday, then the later it starts raising rates, the further it may ultimately have to lift them.

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