Macfarlane hints RBA may yet lift rates

While the chances of more official interest rates rises appear to be receding further every week, the speech by Reserve Bank governor Ian Macfarlane provides a warning that further rises in coming months can't yet be ruled out.

Another month of declining lending to owner-occupiers and investors confirms the borrowing surge is over for now and credit is coming back toward sustainability. But Macfarlane is at pains to point out that even the 20 per cent decline from a peak of $15 billion a month last October to $12 billion currently, still leaves lending for property at quite high levels. He's not yet convinced it won't bounce back, and wants to see further declines to lock in a more sustainable level of lending. Although there are signs of a slowdown in certain sectors of the housing market – such as inner-city apartments in Melbourne and Sydney – the RBA is unsure whether the property boom has abated.

At the same time the time is fast approaching when interest rates elsewhere in the world, notably the US, will likely be on the rise from multi-decade lows. The world economy is really starting to pick up steam now and the inflation threat starting to re-emerge. Australia, Macfarlane says, will be boosted by this world recovery more than most given Asia is an engine of growth.

Housing loan commitments for owner-occupiers fell 4.3 per cent in February. Within the overall figure, lending for the purchase pf new dwellings rose 10.2 per cent while for purchases of existing dwellings fell 4.9 per cent. Lending to investors fell 2.6 per cent and is now 25 per cent below its October peak.

The outlook from here is that rates are most likely to remain on hold into the second half of the year, but more rises are also a possibility.

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