Economists think the Reserve Bank of Australia (RBA) will spare homebuyers the burden of another official interest rate rise next Tuesday, despite last week's worrying inflation readings.

But even if the central bank keeps its key cash rate at 7.25 per cent, it won't stop retail banks from independently increasing their mortgage rates again while their foreign borrowing costs remain high.

Three of the country's big four banks - ANZ, National Australia Bank and Westpac - have all raised their variable mortgage rates by 0.10 percentage points in the past few days.

"I certainly envisage a position in the next few months that you will still have very problematic funding conditions for banks and they continue with another couple of 10 basis point increases," Lehman Brothers Australia chief economist Stephen Roberts said.

However, there are signs that 12-year high rates are having the desired impact of slowing the economy to cool inflation, which would allow the RBA to break with its recent tradition of jacking up its key rate after a strong inflation report.

Backing Mr Roberts' call that official rates are at their peak, NAB's quarterly business survey, released Tuesday, found business conditions "deteriorated markedly and unexpectedly in the March quarter".

NAB's business conditions index dropped to its lowest level since mid-2006 in the first three months of year after posting its biggest quarterly fall in seven years.

Business confidence in the March quarter also dropped to its lowest level since 2001.

"The combination of much tighter financial conditions, falling global equity markets and the global credit crunch has produced a sharp fall in business confidence," NAB group chief economist Alan Oster said.

It is not only business that is worried by high interest rates.

South Australian Premier Mike Rann said on Tuesday he was sending a submission to RBA Governor Glenn Stevens to put interest rates on hold to maintain housing affordability and jobs growth.

"All of us are concerned about the impact of a further rise in the official rates," Mr Rann told ABC Radio.

"What I'm asking the Reserve Bank to do is to press the pause button to see the impact of the current round of interest rate rises on the economy," he said.

There are several key indicators due out before next Tuesday's monthly RBA board meeting that will likely stay the hand of the central bank, not least Friday's release of March quarter retail spending data.

Economists are expecting quarterly retail spending to drop 0.2 per cent, which would be the biggest decline since September 2000.

Retail spending makes up some 60 per cent of the domestic consumption part of gross domestic product (GDP).

Lehman's Mr Roberts expects March quarter GDP will grow just 0.2 per cent, with some risk of it being negative with exports likely to be a drag on growth again.

"Our Q1 GDP could be softer than the US Q1 GDP," Mr Roberts said.

The US advanced GDP reading for the March quarter is released on Wednesday, and is forecast to rise by 0.4 per cent on an annualised basis.

http://news.theage.com.au/banks-will-raise-rates-again-economists/20080429-29bh.html

AAP April 29th 2008