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Tuesday, May 4, 2010

Aussie home prices surge, set stage for rate rise

SYDNEY: Australian house prices surged 20% in the year to March, the fastest pace on record and a powerful argument for the central bank to raise interest rates this week.

Other data released yesterday showed Australian manufacturing activity running at its fastest pace in eight years, while a private gauge of inflation pointed to percolating price pressures as the economy gained steam.

All of which stoked speculation the Reserve Bank of Australia (RBA) would pull the trigger on another rate rise at its monthly policy meeting on Tuesday, which would be the sixth increase in seven meetings.

“All the various measures of house prices are now growing in the double digits and that’s a major plus for household wealth, consumption, building employment and the like,” said Brian Redican, a senior economist at Macquarie.

“It’s a big tick in the box for a rate hike tomorrow.”

A Reuters poll of 21 analysts taken on Friday found 16 expected the cash rate to be raised 25 basis points to 4.5%, making 150 basis points of policy tightening since October.

Investors were reluctant to bet too heavily on a rate rise, having been burned badly in February when the central bank chose to skip a move.

Interbank futures showed a near 60% chance of an increase while a measure from Credit Suisse put the probability at 66%.

If the central bank does choose to keep its policy rates steady on Tuesday, the market is almost certain it will get to 4.5% in June and then keep nudging up rates to 5% or 5.25% by the end of 2010.

Some had thought that market uncertainty over debt stricken Greece could deter the central bank from raising rates this week, but that risk had diminished after Athens agreed to a 110 billion euro aid deal.

The Australian dollar bounced from its lows on the day following the housing data.

By Reuters

1 comment:

Rasmus Nielsen said...

A number of changes has taken place since this July. Even with the Federal Reserve bank not to increase the interest rate this week for the time being there is a huge pressure on the economy with the resources industry creating a two speed economy.

Anyone who is considering investing in the residential market, should carefully study the local market (such as Perth as one market and Bunbury as another market).