Keep lid on rates, industry urges

A BUSINESS lobby group says interest rates must stay on hold because the economy is still "fundamentally quite weak".

Industry has high hopes for sales and profits this year, but is worried about investment levels. / File

A BUSINESS lobby group says the Reserve Bank should keep interest rates on hold when it meets next month because the economy is still "fundamentally quite weak".

Australian Chamber of Commerce and Industry economics director Greg Evans said the group's investor confidence survey showed business conditions were "patchy and lacklustre", reports the Herald Sun.

"Given that weakness, we would be concerned if there's any sort of pre-emptive interest rate increase," Mr Evans said.

The survey of 916 businesses found expectations of business conditions, sales and profitability were at their highest level since October 2007, but expectations for investment remained at contractionary levels.

"We would certainly not be recommending a further rate rise in February on the back of the evident weakness displayed in this survey," Mr Evans said.

His comments came as official statistics showed residential building approvals rose 5.9 per cent in November, on a seasonally adjusted basis, after falling in October.

Housing approvals fell 2 per cent, but approvals for other residences, such as apartments and units, surged 31.7 per cent.

But JP Morgan senior economist Helen Kevans said she expected approvals would "taper off quite a lot" after December because of interest rate rises and the scaling back of the first home buyers' grant.

"Those three consecutive rate hikes in the final three months of the year will definitely have an impact on approvals going into 2010," she said.

Ms Kevans said the RBA would be watching labour data, including employment and the CPI, and statistics from offshore in the next few weeks and still tipped a 25-basis point rise.

The December quarter interest rate rises also influenced performance of services data released yesterday.

The Australian Industry Group/Commonwealth Bank index found the services sector was flat in December, partly because of a drop in new orders.