The Reserve Bank of Australia will probably keep interest rates unchanged this week because house prices are falling and consumer spending is slowing after two increases in borrowing costs last year, economists said.

Governor Ian Macfarlane and his eight board colleagues will keep the overnight cash rate target at 5.25 per cent when they meet today, according to all 23 economists surveyed by Bloomberg News on Friday. The decision will be announced in Sydney tomorrow morning.

House prices in Australia's largest cities fell in the first quarter and banks such as Westpac Banking Corp, which have benefitted from surging mortgage lending over the past few years, say borrowing is slowing. Retail spending had its smallest quarterly increase in a year in the first quarter.

"The Reserve Bank has time to sit back after rate increases last year," said Shane Oliver, chief economist at AMP Capital Investors, Australia's second-largest money manager with the equivalent of US$48 billion in assets under management.

"Inflation is pretty low and there's ongoing uncertainty about the speed and extent of the housing slowdown."

The central bank raised its benchmark rate by one-quarter of a percentage point in November and again in December to a three-year high to cool demand for residential property, which had driven up home prices by almost one-fifth in each of the past two years.

The economy expanded by 1.4 per cent in the fourth quarter from the previous three months, the fastest pace in four years, and 4 per cent from a year earlier.

Now economic growth is cooling. A report tomorrow will probably show the economy grew 0.7 per cent in the first quarter from the previous three months, half the rate of the fourth quarter, according to a Bloomberg News survey of 22 economists yesterday. Economists revised their economic growth forecasts higher after a report yesterday showed inventories of companies had increased 2.2 per cent in the first quarter.

Business investment declined 2.5 per cent in the first quarter, the first drop in a year, a government report last week showed. Consumer prices rose 2 per cent in the first quarter from a year earlier, at the bottom of the central bank's target range for annual inflation of between 2 and 3 per cent.

Retail sales adjusted to remove inflation rose 0.4 per cent in the first quarter after gaining 2.5 per cent in the fourth quarter and 2.7 per cent in the third.

Home-loan approvals for people who plan to live in the properties they buy fell 1.2 per cent in March, the sixth straight monthly decline, the government said this month.

The Australian dollar was little changed and bonds declined from Friday. It traded at 71.44 US cents at 4:30 pm yesterday in Sydney from 71.45 US cents in late New York trading on Friday. The yield on the 6.5 per cent bond maturing May 2013 rose 3 basis points to 5.86 per cent. A basis point is 0.01 of a percentage point.

The median price of homes sold in Sydney, Australia's most populous city, fell 7.5 per cent in the first quarter from the previous three months, research group Australian Property Monitors said last week.

Westpac, the nation's fourth-largest lender, said profits in the six months which ended March 31 rose 17 per cent to a record A$1.23 billion (US$880 million) on increased lending. The bank said home-lending growth is now cooling.

"The housing slowdown will arrive and will not be fully offset, so we'll have a slowing in total credit growth," Westpac Chief Executive David Morgan told reporters this month.

(China Daily 06/01/2004 page12)