Rates steady as RBA waits and watches

The Reserve Bank meets in ten days to consider interest rates but there is no realistic chance of any move in September, up or down. Not just because it lifted rates last month and will be wanting see further data on inflation later in the year, but also because the turmoil in share and credit markets around the world raises the possibility of a hit to economic growth. The rates picture has already turned in the United States with the Federal Reserve cutting one of its key lending interest rates to banks, and is now expected to cut rates more widely by mid-September. There are fears of a slowdown in the US, which would effect growth around the world and have some impact here. It may well not play out that way, but while the picture remains uncertain, central banks will be cautious. Inflation still remains the biggest concern in Australia, according to the RBA governor Glenn Stevens, given our solid growth across most sectors of the economy. That is, the bank's deliberations on interest rates remain focused on whether to put them up or not to contain inflation, rather than whether or not to cut them to boost economic growth. That's what Stevens told us last Friday in testimony to a parliamentary committee, but it would be interesting to know if his comments would have been quite the same had that testimony come this week, after the Fed's initial action on rates. The balance between curbing inflation and maintaining growth must have shifted somewhat as the risks to growth here, although not great at the moment, have risen. This may mean the RBA acts more cautiously on rates and chances of a further rate rise in the next six months are lower. But it's still too early to tell just what the economic fallout from the global credit market shakeout will be for the world and us. All we can say is there is unlikely to be any move on rates in September or October.