High rates cool credit demand

HIGHER interest rates have restrained demand for credit, but appear to have done little to rein in inflation pressures which are growing, data released today shows.

HIGHER interest rates have restrained demand for credit, but appear to have done little to rein in inflation pressures which are growing, data released today shows.

Ahead of tomorrow's Reserve Bank of Australia (RBA) monthly board meeting, the central bank released credit data for May, and again showed high interest rates are having the desired impact of cooling domestic demand.

Total credit rose by a slim, seasonally adjusted 0.6 per cent in May, causing the annual rate to slow to a pace not seen since November 2005 at 13.4 per cent, compared to 14.1 per cent in April.

In December annual credit growth was running at 16.5 per cent.

However, the TD Securities-Melbourne Institute inflation gauge for June showed another 0.5 per cent jump in prices, pushing the annual rate up to 4.8 per cent.

This is the largest annual increase in the more than five-and-a-half year history of the inflation.

The number is also way beyond the RBA's 2 to 3 per cent inflation target band, and higher than the 4.2 per cent recorded for the official consumer price index during the March quarter.

The next official readings of inflation are due on July 23.

However, economists expect the RBA to leave its key cash rate unchanged at 7.25 per cent for a fourth straight month at tomorrow's meeting, awaiting these official numbers.

The central bank has said a slowing economy is likely to cool down inflation - but if it does not, it might be forced to raise interest rates again after eight rate rises in three years.