Rates steady but RBA watches closely

Interest rates are all but certain to be left steady for another month when the Reserve Bank board meets on Tuesday to deliberate on rates for July. Although fears of rising inflation are in the minds of the board members, there is no real chance of a rise in rates until the next quarterly inflation figures are revealed towards the end of the month. Even then, it is unlikely that inflation will have jumped significantly from the moderate levels seen in the first quarter of 2007. But the inflationary threat later this year or in 2008 remains, underlined by the International Monetary Fund this week, whose chief economist warned that global economic growth is likely to be above 5 per cent in 2007. It's much the same picture in Australia where the economy is motoring along at a very healthy clip. How long this can go on without inflation pressures appearing is the key question, and this is the IMF's major concern currently. At the first sign of an inflation breakout here, borrowers can rest assured the RBA will move fast to raise interest rates to stifle it. The RBA's own statistics on borrowing for May show a continuation of recent trends. Housing credit is back growing at levels of 1 per cent or so a month although there seems no signs of a jump to unsustainable levels that would worry the RBA. Consumer credit also continues to lift and will be closely watched for any rising trend above 12 per cent annual growth where it now stands. Business borrowing continues to run at high levels, now at an annual rate above 17 per cent. This won't be cause for alarm yet either as most of this represents investment in new capacity sorely needed in an economy overstretched by strong growth in demand over the last couple of years.