Rba Expected To Hold Rates As Slowdown Emerges
The Age
Tuesday April 1, 2008
AS THE Reserve Bank board meets in Sydney today to discuss interest rates, reports show the economy is slowing while inflationary pressures are building, and small business owners foresee recession within three years.
The central bank is expected to leave interest rates on hold when it announces its decision at 2.30pm.Economists are tipping no change for now, and investors are counting on the central bank to cut rates this year. The probability of rate cuts, according to a Credit Suisse index, is 43%.The current cash rate is at a 12-year high of 7.25%, following rises in February and March, and all the major banks have raised their home loan rates above the level set by the Reserve.St George yesterday followed NAB and Westpac in increasing lending rates for the second time in a month. The nation's fifth-largest lender raised its variable home loan rate by another 10 basis points to 9.47% after last month lifting its rate by 35 basis points to 9.37%.Despite the nation's top chief executives telling The Age last week that they did not believe the local economy was headed for crisis, the March 2008 MYOB Australian Small Business Survey found 57% of small business owners were expecting a recession within three years. It said 58% believed the economy would fare worse during the next year, while nearly 60% indicated a negative outlook for interest rates. "Naturally, the current volatility in world financial markets, and the upward trend in Australian interest rates, are having a big impact on small businesses," said managing director Tim Reed. The report also found 44% were dissatisfied with Labor's contribution to small business - up slightly from 37% in November 2007, before the federal election. On the inflation front, a new report shows higher petrol, food and rent prices have pushed Australia's annual inflation rate above 4% for the second month running - well above the Reserve Bank's target. The TD Securities Melbourne Institute Monthly Inflation Gauge found the price of automotive fuel for the 12 months to March rose by 12.4% while the cost of rent rose by more than 12%. TD Securities senior strategist Joshua Williamson said the central bank would be worried that inflation was "showing few if any signs of topping out", but rates would most likely stay on hold because the Reserve had anticipated higher inflation when it increased the official cash rate in February and March. "The economy and inflation have not yet had time to react to the two most recent official interest rate increases, not to mention the most recent round of unofficial hikes from the major banks and renewed stresses in the global credit market," he said. Signs of slowing growth are gradually flowing through. Reserve Bank data shows that total private sector credit rose by 0.7% in February - the slowest monthly growth rate since February 2004. Over the year to February, total credit rose by 15.5%. Housing credit rose 0.9% in February, but business credit weakened to be only 0.5% higher in the month, from 1.5% previously, and remains below the 1.8% average monthly growth rate since January 2007. Personal credit fell 0.1%. ANZ economist Alex Joiner said: "It may be the case that the increases in business lending rates - which have been much more exposed to financial institution funding cost increases than mortgage rates - have deterred businesses from adding significantly to their debt levels."Reserve Bank governor Glenn Stevens will face intense questioning from federal politicians this week, in his first house economics testimony under the new Rudd Government.KEY POINTS ? The Reserve Bank board is expected to keep rates on hold at its monthly meeting today.? St George Bank follows Westpac, NAB and ups its variable home loan rates.
© 2008 The Age
