Interest rates stable as business expands

The Reserve Bank meets on Tuesday for its monthly consideration of interest rates, but there is nothing in recent economic data that would suggest any threat of rate action to borrowers. Inflation is back under control for now and the latest figures on business investment and private sector borrowing underline the virtuous economic circumstances Australia finds itself in currently - solid economic growth without any inflationary trade-off. Capital expenditure figures for the March quarter show a rebound in business investment growth after a tail-off in the second half of last year. New capital expenditure rose 9 per cent overall, on the back of a 17 per cent jump in investment in buildings and a 6 per cent rise in plant and machinery. The Reserve Bank's own data on borrowing in the private sector shows a similar picture with business credit growth in April at a strong 1.7 per cent, pushing the annual rate to almost 17 per cent. The RBA will like these numbers, an indication that business is investing in greater capacity to keep up with the solid pace of economic expansion. Capacity constraints - shortages and bottlenecks - contributed to inflation over 2005 and 2006 as business struggled to keep up with demand. Housing credit continues to hover around 1 per cent a month growth, reflecting a flat housing market, and poses no threat to interest rates. Consumer credit grew 0.7 per cent in April, also remaining well contained. Retail trade was flat during April, growing just 0.1 per cent. But this follows some fairly strong growth in previous months and in trend terms consumer spending remains healthy.