Fed: Howard says RBA makes right decision to hold rates

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Fed: Howard says RBA makes right decision to hold rates

By Jim Hanna, Economics Correspondent

CANBERRA, Aug 7 AAP - The Reserve Bank of Australia made the right decision when itleft interest rates on hold this month, Prime Minister John Howard said today.

"It would not have been the right decision in current economic circumstances, withuncertainty with the American economy, to have lifted interest rates," Mr Howard toldAdelaide radio 5DN.

As widely expected, the RBA board left official interest rates at 4.75 per cent untilat least next month.

Economists expect few, if any, rate rises this year given the uncertain economic outlookoverseas and its potential impact on Australia.

Treasurer Peter Costello warned Australia would not be immune from global developments.

"There is going to be a rocky road in the course of 2002 and 2003," Mr Costello toldjournalists in Sydney.

"Interest rates at the moment are very supportive of consumer demand and we'll haveto look to keeping the Australian economy (growing) ... at the rate at which it has beengrowing in the past," he said.

Labor also backed the decision to leave interest rates on hold, but said it highlightedthe RBA's concern about the economy.

"The decision suggests the bank shares my views that there is more uncertainty overthe economic outlook than when governor Ian Macfarlane commented in May on the need forrates to move back to `neutral'," treasury spokesman Bob McMullan said in a statement.

New lending figures today suggested there was still life in the building industry,despite a decline in first home buyers.

Lending to buy homes climbed 3.2 per cent in June, the third monthly increase in arow, the Australian Bureau of Statistics (ABS) said.

More importantly, borrowing to build new homes grew by a healthy 9.6 per cent afterfalling in the previous two months.

"Today's data remains consistent with our view that housing activity will peak in thecurrent quarter," Westpac economist Justin McCarthy said.

"However, the subsequent downturn will be quite muted given our view the RBA will (keepinterest rates) on hold well into 2003," he said.

The percentage of first-home buyers getting loans fell to 17.5 per cent of all homebuyers, from 18.8 per cent previously, indicating the boost from the government's $10,000grant fizzled out well before its June 30 expiry date.

Meanwhile, an official measure of future employment trends rose for the 14th monthin a row, although job growth remains below its long-term trend.

The Department of Employment and Workplace Relations (DEWR) Leading Indicator of Employmentlifted to minus 0.279 in August from minus 0.289 in July, suggesting stronger employmentgrowth in early 2003, DEWR said.

Official employment figures for July will be released tomorrow at 1130 AEST, with economistsexpecting a rise of 10,000 new jobs.

AAP jph/was/sb

KEYWORD: ECONOMY NIGHTLEAD