SYDNEY: Australian building approvals data showed no let-up in the red-hot housing market in July, ensuring the central bank will hold interest rates steady this week despite expectations for flat economic growth, analysts say.

Building approvals figures released yesterday rose a seasonally adjusted 2.1 per cent, following a 6.3 per cent jump in June, which was well above forecasts for a 3.3 per cent decline.

Private sector housing approvals fell 1 per cent, but not by enough to suggest a housing balloon that has worked against any move by the Reserve Bank of Australia (RBA) to lower interest rates is deflating. Approvals rose 10.7 per cent the previous month.

"It confirms that a collapse in housing construction is not going to be a drag on the economy any time soon," said Michael Blythe, the Commonwealth Bank of Australia's chief economist.

However, he added the continued housing market rise now appeared to be one of the few drivers of an economy that was growing at 4 per cent just a year ago, but has been hit by the country's worst drought in 100 years and weak global growth.

Today's gross domestic product for the June quarter could record its first quarterly contraction since December 2000.

The RBA holds its monthly board meeting today and economists are placing only a slim 10 per cent chance of a move in the 4.75 per cent cash rate this week. The bank's decision on rates will be announced tomorrow.

Rising household debt and the hot housing market argue against a cut, while weaker growth following damage to exports would support a cut.

Speaking at a gathering of central bankers in the United States this weekend, Deputy RBA Governor Glenn Stevens again highlighted the risks associated with rising asset prices and increased household debt.

"While we do not think that there would be any significant financial sector fragility as a direct result of this increased debt, even if house prices were to fall in the near-term, we fear that there could still be significant general economic fall-out if the economy is subject to some other shock," he said.

Agencies via Xinhua

(China Daily 09/02/2003 page6)