Don't bank on steady rates

The Reserve Bank has left interest rates steady for this month, giving borrowers another reprieve from rising repayments. Official rates stay at 4.75 per cent leaving the standard variable rate at 6.57 per cent. While the decision to leave rates unchanged was widely expected, borrowers should not conclude that rates will continue to stay on hold - they may well be on the rise soon. Perhaps as soon as next month. There is concern over Australia's slowing rate of economic growth as evidenced by this week's release of national accounts figures showing GDP slowing to 3.8 per cent in the June quarter. Along with signs of easing in the housing industry and a drop in retail sales in July this might suggest the case for raising rates is not strong at the moment. But the RBA won't be overly concerned by the June GDP result – it's too far in the past. Only if it thinks this slowing is continuing in the current September quarter is it likely to consider moving away from its stated intention to raise rates back to more neutral levels. And Australia's growth is still quite "solid", as the treasurer says, and looking behind the figures shows that spending remains strong. Imports are high and retail sales are healthy, despite the fall in July. The key to our economic outlook still lies overseas. If signs emerge that the US economy is picking up steam and the worst of the global markets mayhem is behind us, the RBA well reach for levers again soon. But this week has seen a renewed bout of nervousness in the US with another sharp fall on Wall Street and more signs economic recovery is stalling. At this stage, however, another 0.25 percentage-point rise remains quite possible before the end of the year.