Fed: Stronger confidence fuels interest rate rise fears

AAP General News (Australia)
04-11-2006
Fed: Stronger confidence fuels interest rate rise fears

By Paul Osborne

CANBERRA, April 11 AAP - Home-owners are more likely to face an interest rate hike
this year after two surveys revealed a sharp rise in business confidence on the back of
stronger economic conditions.

The National Australia Bank's monthly business survey for March released today showed
business conditions at a 29-month high after rising 50 per cent to 20 points.

Company concerns about the short-term outlook for the economy faded in the face of
improved domestic trading conditions and profitability.

But cost pressures, high oil prices - which could see petrol reach $1.40 a litre in
some capital cities over the Easter break - and the availability of skilled labour remain
a concern.

NAB head of Australian economics Jeff Oughton said the bank was now forecasting a three
per cent rise in GDP for 2006, revised upward from 2.75 per cent.

Mr Oughton said the stronger economic outlook had lifted the NAB's forecast for underlying
inflation and pointed to the Reserve Bank (RBA) raising interest rates.

"NAB has changed from seeing the RBA being on hold with risks evenly balanced - a view
maintained since April 2005 - to expecting a modest tightening of policy during the next
few months or so, as the upside underlying risks to inflation have increased significantly,"

he said.

He said the RBA would be particularly sensitive to signs of higher wage and price pressures.

Similar sentiments were reflected in the ACIL Tasman-Australian Chamber of Commerce
and Industry's investor confidence survey.

Businesses were optimistic about investment over the next 12 months and believed conditions
were sound.

But sales and profit growth continued to be low.

Most businesses expected a small rise in interest rates this year.

ACCI chief Peter Hendy said the chief constraint on investment reflected in the report
was the non-availability of qualified staff.

"Skill shortages are a number one priority for the business community," he said.

Lending figures released by the Australian Bureau of Statistics today show consumers
are also feeling more confident about the economy.

Personal finance commitments rose 2.1 per cent to $6.5 billion in February, following
a 3.6 per cent increase in January.

Commercial finance lending also increased by four per cent to $33.4 billion.

But CommSec equities economist Andrew Mitchell said there was no need to panic on rates.

"Interest rates are the most stable they have been in 32 years," Mr Mitchell said.

"And although there are whispers that interest rates may increase soon the vast majority
of economists, including us, believe that interest rates are on hold through 2006."

AAP pjo/so/rj/br

KEYWORD: ECONOMY NIGHTLEAD

2006 AAP Information Services Pty Limited (AAP) or its Licensors.