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credit figures support rate rise

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    Credit figures support rate rise
    October 31, 2006 11:39am

    THE central bank's credit aggregates released today are likely to support the case for another interest rate hike next week, despite some signs of slowing and growth rates not much out of line with longer-term averages.

    Total credit growth of 1 per cent in September was in line with the average of the preceding 12 months, while annual growth of 14.4 per cent was about in line with the 13.1 per cent average of the previous five years.

    Housing credit growth of 1 per cent in September was slightly lower than the 1.1 per cent average of the past year, with annual growth of 14.2 per cent notably slower than the 17.2 per cent average of the past five years.

    Analysts say the data supports the case for a rate rise citing strength in business credit up by 15.9 per cent in the past year, versus a five-year average of 8.8 per cent.

    ANZ senior currency strategist Tony Morriss said the credit data coupled with a steady dollar value would do little to sway the Reserve Bank from an expected rate rise.

    "It shows credit growth still holding at levels sufficient to see the RBA (Reserve Bank of Australia) lift rates next week, but no real change to influence thinking beyond that," Mr Morriss said.

    Housing credit is still historically firm and up from a low of 11.9 per cent in late 2005, according to Westpac Bank. New lending to the housing market also strengthened from late in 2005, given readily available cash and strong labour market conditions.

    The central bank sets rates to keep inflation between 2 and 3 per cent and the latest numbers for the September quarter of 2006 clearly exceeded that level at 3.9 per cent, as they did in the June quarter when the CPI hit an 11-year high.

    The central bank in August lifted the official cash rate by 25 basis points to 6.0 per cent, a five-year high, following a rate rise in May. The rate rise took variable lending rates to 7.8 per cent, well above lending rates of recent years.
 
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