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Economy buoyed by rise in lending -

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ELEANOR HALL: There's more economic data out today that bolsters the Reserve Bank's view that
Australia is pulling out of the downturn. Official figures on lending finance show that there's
optimism in households and in the business sector. But Australians are also likely to be facing a
series of official interest rate rises.

Business editor Peter Ryan joins me now in the studio. So Peter tell us about these latest numbers?

PETER RYAN: Well, Eleanor, all this adds up to more evidence that confidence is on the mend and we
should also note that when we are talking about confidence being on the mend, that is coming from a
very low base but just looking at the total commitments for personal finance out today - they are
up 4.1 per cent in August seasonally adjusted to $7.1 billion. That's up from $6.9 billion in July,
reflecting the bounce in confidence that we're been seeing recently and you would have to say that
this has happened even though the Government stimulus is starting to fade away.

But the big talking point here is commercial finance - business, as we know, has been battered by
the downturn and economists were looking for a pickup to confirm the upward trend. Well, they got
it this morning. Commercial lending up 5.6 per cent in August at $28.5 billion and that's around
$1.5 billion better than July.

ELEANOR HALL: Then, of course this month though we've had the prospect of rising interest rates
raising its heads again. Is confidence likely to be dampened by that?

PETER RYAN: Well, just looking at some of the data, Eleanor, that is out this week and one of the
key pieces that we look at and often talk about on this program is the consumer sentiment survey
from Westpac and the Melbourne Institute.

Now last month it hit its highest level since July 2007 but economists are expecting that maybe
this might fall back on the view that businesses are losing confidence because of Tuesday's rate
rise and the pressures that that will put on business and so that confidence survey adds into other
pieces of data that is out this week.

Tomorrow we'll see the NAB's monthly business survey - last month it rose to its highest level in
six years. Economists are betting on that trend to continue and we'll also be hearing from both the
Treasury Secretary and the governor of the Reserve Bank on Thursday. They are speaking at separate
events and their comments on the pace of recovery will be critical to the outlook and everyone is
going to be looking to see what Glenn Stevens has to say about his views on how strong the economy
is and as we heard last week, Ken Henry does have some reservations particularly in the area of
rising unemployment, unemployment which he thinks could reach 7 per cent.

ELEANOR HALL: The Federal Government is warning the commercial banks not to hold back, or to hold
back on any rate rises that they might be considering that are on top of the Reserve Bank's
increases. Can they do anything to stop them though?

PETER RYAN: Well, at the moment all the Treasurer Wayne Swan can do is say that he's quote "quite
angry" if banks go beyond official RBA movements.

He's expected to maintain that line particularly this week as those interests rate rises come into
effect.

Three of the four big banks start their increases to the standard variable rate today but he's also
watching the rollout of the Government's strategy to restore competition to the mortgage industry
and the Government is pumping an additional $8 billion into the market for residential
mortgage-backed securities and that is to provide greater liquidity to help the likes of business
building societies, credit unions and regional banks to compete against the big four.

ELEANOR HALL: Have any of these smaller institutions taken the Government up on this offer yet?

PETER RYAN: Well, just this morning we have heard that the mortgage lender Liberty Financial which
has been keeping quite a low profile during the credit crisis, plans to sell $126 million of
securities this week. They haven't put a price on the securities but it's expected the Government
may well be a buyer of some of these securities.

ELEANOR HALL: Peter Ryan, our business editor. Thank you.