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rising debt lifts rate rise pressure

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    CONSUMERS and business may be more cautious about taking on debt, but they still borrowed more in September, giving economists greater confidence about another interest rate rise next week.

    The news came as an industry survey revealed sales of new houses fell for the fifth time in six months, and building groups and some businesses warned of tougher conditions.

    The Housing Industry Association's figures show sales of new houses and units in Australia fell 3 per cent in September, to 7342 dwellings. The survey — which captures about 20 per cent of the home-building industry nationally — found sales in Victoria rose for the first time in five months in September, but were 14.6 per cent lower than the same quarter a year ago.

    But the latest Reserve Bank credit figures showed people continued to borrow despite the May and August interest rate rises.

    Total credit financial institutions provided to the private sector rose 1 per cent in September, after an unrevised 0.9 per cent rise in August. In the year to September, total credit rose 14.4 per cent.

    Housing credit grew 1 per cent in September and 14.2 per cent for the year, seasonally adjusted. Other personal credit grew 1.1 per cent in the month and 9.5 per cent for the year while business credit increased 1 per cent in the month and 15.9 per cent for the year.

    JPMorgan chief economist Stephen Walters said the credit data supported the case for a policy tightening next week. The Reserve Bank board meets on Tuesday, Melbourne Cup day, and will announce its decision the next morning.

    "Following last week's (consumer price index) data showing unexpectedly high headline inflation and another rise in the core rate, the case for another tightening already was strong," Mr Walters said.

    "The risk is that the RBA has to raise the cash rate more than one more time to produce a sustainable slowdown in credit growth."

    ANZ's head of financial systems analysis, Paul Brad, said the household credit figures reflected "solid underlying conditions in the household sector" as a result of tax cuts, low unemployment and strong wages growth. But he said annualised household credit had still slowed in recent months, with annualised quarterly growth down to 12.9 per cent from a peak of 16.4 per cent in June.

    "This most likely reflects a reaction to the May and August interest rate hikes," Mr Bradd said. "We continue to expect further monetary policy tightening from the Reserve Bank next week, which is likely to further reduce momentum in household credit into early next year."

    He said the central bank would be watching finance demand in October to gauge whether the August rate rise had been sufficient to reduce borrowing.

    HIA executive director of economics and housing Simon Tennent said poor levels of housing affordability, higher interest rates, and skills and land shortages would continue to hurt the sector.
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