Economists expect quarter point rate hike at central bank meeting today
(SYDNEY) Australian house prices rose more than estimates in the three months through March, increasing the likelihood of the central bank boosting borrowing costs today.
An index measuring the weighted average of prices for established houses in the eight capital cities climbed 4.8 per cent from the previous three months, the Australian Bureau of Statistics said in Sydney yesterday. The median estimate of 18 economists surveyed by Bloomberg News was for a 3 per cent gain.
House prices surged 20 per cent in the 12 months to March 31, a key reason central bank governor Glenn Stevens is forecast by 18 of 24 economists surveyed by Bloomberg News to raise the benchmark lending rate today by a quarter percentage point to 4.5 per cent, the sixth increase in seven meetings.
Reports published earlier yesterday showed manufacturing growth accelerated in April to the fastest pace in almost eight years, and a gauge of annual inflation accelerated in April to near the top of the central bank's target range.
The Reserve Bank of Australia aims to keep inflation between 2 per cent and 3 per cent on average.
'While this pace of growth may ease in the future, strong auction clearance rates and resilient demand from potential home buyers amid relatively weak supply is likely to push prices' higher, Paul Brennan, an economist at Citigroup Inc in Sydney, said ahead of yesterday's report.
Prices rose the most in Melbourne, gaining 6.7 per cent, followed by a 5.4 per cent advance in Canberra and a 5.3 per cent increase in Sydney, yesterday's report showed.
Demand for homes surged in 2009 after the government tripled in late 2008 payments to first-time buyers of new dwellings to A$21,000 (S$26,600), and doubled the grant to A$14,000 for existing homes.
Those payments were reduced on Jan 1 to their original A$7,000.
The government last month also moved to tighten rules on foreign investment in real estate and introduced penalties to enforce the changes to ensure pressure isn't placed on housing availability for citizens.
Temporary residents will require approval from the Foreign Investment Review Board to buy property, and will have to sell when leaving the country, Assistant Treasurer Nick Sherry said on April 24.
It ensures 'working families are not being priced out of their own family homes,' said Prime Minister Kevin Rudd, who faces an election this year.
Growth in dwelling prices may slow in the coming months as the central bank extends its world-leading series of interest rate moves.
Traders are betting there is a 58 per cent chance of a quarter-point increase in the overnight cash rate target today, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. -- Bloomberg
Source: Business Times, 4 May 2010
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