Market rises 1.3%: Economy round up

A lift in sentiment towards financial stocks and soaring oil prices in the US has sent the market up this morning.

At 11.30am the S&P/ASX200 is up 1.3% on yesterday’s close to 5471.3. Energy stocks such as Woodside – up 2.1% to $56.92 this morning – have benefited from yet another surge in the price of oil in New York, where the price of a barrel of crude reached a new record of $US114.08 this morning.

In good news for borrowers, interest rates are looking more likely to stay put. Reserve Bank of Australia Governor Glenn Stevens moved yesterday to send out a reassuring message to home owners – he feels their pain.

Stevens has come in for some criticism over the past week for not appearing to fully appreciate that recent interest rate rises are making life tough for some mortgage holders.

Responding to questions following a speech in Canberra yesterday, Stevens said the rate rises were necessary to avoid even greater damage being inflicted on the economy.

“I know that mortgage holders are, in many instances, doing it tough, [but] if we don’t control inflation they will do it much, much tougher,” Stevens said. “High inflation is a recipe for high interest rates. That is exactly what we are trying to avoid.”

As for the outlook on rates, Stevens said he believes the current approach to battling inflation is working. “I think the policies in place will succeed in bringing it down over time.”

An initial sign that the policies are working emerged yesterday when the RBA said that its staff have revised down a previous forecast that inflation will remain at or above 3% to 2010.

The comment was contained in minutes of the RBA board meeting earlier this month: “The preliminary assessment, based on current policy settings, was that inflation on both a CPI and underlying basis would fall by a little more than earlier thought.”

And further confirmation of the slowing Australian economy has emerged today, with the Westpac/Melbourne Leading index of economic activity for February , which measures the pace of growth over the next thee to six months, failing to lift from a flat result last month.

The index now predicts economic growth of around 3.3% over the short to medium term, well down from the 6.5% rate forecast in November last year.

Short term arrivals from overseas, a measure of incoming tourism numbers, increased by 0.8% seasonally adjusted in February, thanks primarily to a 4.2% jump in visitors from south east Asian nations Malaysia, Philippines, Singapore and Thailand.