Stephen McMahon in the hearldsun.com.au reports on June 5 2008:ANOTHER interest rate rise to 7.5 per cent towards the end of the year is firmly on the Reserve Bank’s radar after yesterday’s stronger-than-expected growth figures.

Despite high inflation and four interest rate rises since August, the RBA will be concerned that economic growth is not slowing enough.

The Australian Bureau of Statistics yesterday reported that gross domestic product grew 0.6 per cent in the March quarter - double economists’ consensus forecast, taking the annual rate to 3.6 per cent.

Most economists had been expecting the rate to be closer to 3 per cent.

On Tuesday, the RBA left rates on hold at a 12-year high of 7.25 per cent for the third consecutive month.

However, investors on the Sydney Futures Exchange see a 100 per cent chance of an interest rate rise by November, up from just below 70 per cent on Tuesday.

Ten out of 17 industry sectors reported growth of 1 per cent or more in the quarter, pushing the annual GDP rate to 3.6 per cent.

Economists said the improvement in the farm sector after years of drought was helped by the surge in food prices over the past 12 months.

But it was strong growth in construction, household and government spending that were the driving forces behind the economy’s 17th year of growth.

Commonwealth Bank economist John Peters said growth was down from last year’s cracking pace of 4 per cent-plus, but the slowing trajectory would not be enough to stop interest rates going up again, most likely in August or September.

He said a massive inflow of $30 billion to $40 billion from the commodity price increases over the next few months, added to the Budget tax cuts and the recovery of the farming sector, would outweigh higher interest rates and petrol prices.

“This all combines to boost the risks of another interest rate rise,” Mr Peters said.

The pace of economic growth in the March quarter shocked economists, beat the estimates of all 22 economists surveyed by Bloomberg.

Two economists had even gone as far as forecasting negative growth.

But NAB senior economist Jeff Oughton said all of the forward indicators were for slowing economic growth, and with the lags in monetary policy he said the RBA had done enough and rates should stay on hold for the rest of the year.

“The full effects of the interest rate tightenings in November, February and March have yet to flow through the economy,” Mr Oughton said.

He expects the tax cuts and riches flowing from mining to be outweighed by the RBA’s actions to date.

“There is an order of things - first you put up interest rates, then the economy slows and finally inflation comes down - and that is the progression we are in the midst of,” Mr Oughton said.

But he admits the NAB forecasts for rates on hold could be upset by stronger global economic growth and higher petrol and food prices flowing through into pressure for wage increases.

The stronger-than-expected GDP growth sent the Australian dollar to a top of US95.83 in late trading.

But the Aussie’s burst of momentum in recent months is expected to be crimped by the renewed strength of the US dollar following comments from Federal Reserve chairman Ben Bernanke.

On Tuesday Mr Bernanke signalled that the next move for US interest rates was likely to be up, in a bid to counter inflation.

In response to the global credit crunch, the Fed has cut US rates by 2.25 per cent since September to a low of 2 per cent.