Reserve Bank wants spending to tighten

THE Reserve Bank has warned that consumers need to keep a lid on spending for the economy to avoid inflationary pressure.

The RBA would rather you saved your money / File

THE Reserve Bank has warned that consumers need to keep a lid on spending for the economy to avoid a potentially perilous inflationary spiral.

Households will have to save rather than borrow to make room in Australia's buoyant economy for a forecast surge in business investment, the central bank has signalled.

But interest rates will continue rising regardless, economists believe, as the Reserve battles to keep the economy from overheating.

Minutes released yesterday from the RBA's latest meeting indicate board members are pleased with the new-found restraint in household consumption and borrowing "despite high levels of confidence".

"This restraint, if it continued, would provide some scope for investment to rise without causing aggregate demand to grow too quickly and inflationary pressures to build," the minutes say.

JP Morgan economist Stephen Walters said they laid bare the need for "Aussie households . . . to 'make room' for the coming strength in business investment".

The Reserve has previously indicated that high levels of business investment, stoked by the continuing mining boom, are fuelling robust economic growth in an emerging "two-speed" economy.

HSBC chief economist Paul Bloxham said the minutes were "a little harder" than usual to dissect.

But it was clear that board members believed the restraint in household spending was necessary, the former RBA staffer said.

HSBC economists, along with those at ANZ and Westpac, predict the RBA will lift the official interest rate in the second quarter of next year, with more increases to follow.