Further rate rises unlikely

The chances of any further interest rate rises are receding as the signs of economic slowdown continue to gather and the Rudd Government hands down a Federal Budget that cuts spending. It may only contain a moderate curtailing of government spending but the first Swan budget does not work against the Reserve Bank’s tight monetary policy to bring down inflation.

Elsewhere, lending for housing plunged for the second month in a row in March, both by value (down 5 per cent) and numbers of loans (down 6 per cent), and across all segments; owner occupied and investor, new and existing dwellings. Bigger falls were recorded in business and personal lending, down more than 11 per cent each, and these Australian Bureau of Statistics numbers tally with the RBA’s own credit figures.

The NAB’s business confidence index fell further in April to be well below the average of the last ten years. High interest rates and the global credit crunch which has made borrowing harder is hitting sentiment among business owners, and is likely to indicate further weakening of business conditions from here on, the survey report says.

In short, high interest rates are starting to bite hard among consumers and businesses.

Meanwhile, wage growth continues to be contained and isn’t providing any threat to interest rates at this stage. The preferred Wage Price Index measure rose just under 1 per cent in the March quarter for an annual rate of 4.1 per cent – fairly steady for some time now. Wage rises have not gotten out of hand as many expected in such a tight labour market and while this may yet happen, there is little in these figures to worry the RBA about wage-induced inflation.

Amid all these signs, the RBA is unlikely to find itself having to raise interest rates again.

Infochoice.com.au