Fed: Little chance of interest rate rise this week - economists

AAP General News (Australia)
04-05-2004
Fed: Little chance of interest rate rise this week - economists

By Krista Hughes, Economics Correspondent

CANBERRA, April 5 AAP - Homebuyers can look forward to the Easter break with little
threat of an interest rate rise at tomorrow's Reserve Bank meeting, and maybe for the
rest of the year.

A rare interview by Reserve Bank boss Ian Macfarlane has sparked speculation political
considerations in the lead-up to the federal election, due later this year, may stay the
bank's hand.

However, strong jobs data in the United States and at home have also highlighted the
fact interest rates remain low by historic standards, and may need one more lift to click
into neutral gear.

Mr Macfarlane said the 2001 election had a small influence on the Reserve's decision
to cut rates that year and it would take a strong case to raise rates in an election year.

"If there was a really strong case to do something, we would always do it regardless,"

Mr Macfarlane told University of Queensland Assistant Professor Stephen Bell.

"But it would have to be a pretty strong case."

Dr Bell's book, Australia's Money Mandarins, is published by Cambridge University Press
this week.

Some analysts said the combination of the federal Budget in May and an election as
early as August meant tomorrow's board meeting could be the last politically feasible
time for a rate hike.

Rates did rise just before the 2000 Budget and the government is keen to avoid a repeat.

Treasurer Peter Costello stressed last week the economy was delicately poised.

ANZ chief economist Saul Eslake said the drop-off in lending and a pause in the housing
market following last year's back-to-back rate hikes could put a rate rise off the agenda
this year altogether.

"I don't think the RBA is that sensitive to the political agenda," he said.

CommSec chief equities analyst Craig James said the Reserve would take into account
the fact that consumers and businesses were always more cautious during elections.

"(Voters) are uncertain about what the outcome will mean for the economy, so it does
create some degree of caution and that might be why the bank would hold off, not wanting
to add to the uncertainty," he said.

But Mr James said consumers normally got over rate rises in a few weeks. he said he
was sticking to his tip for a rate hike in June, pointing to strong US payrolls figures
and a rise in job advertisements locally.

Newspaper job ads hit a 17-month high in March and online ads surged to record levels,
according the ANZ's monthly survey.

Newspaper job ads rose by 0.3 per cent to be 4.1 per cent higher than a year earlier
and the number of online job ads rose 5.7 per cent.

ANZ chief economist Saul Eslake said two months of rises should keep the jobless rate
below six per cent through the June quarter.

Separate surveys showed activity in the services sector fell for the third month in
a row in March and consumer spending moderated, although new car and truck sales jumped.

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KEYWORD: ECONOMY NIGHTLEAD

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