RBA rests easier on inflation and rates

Borrowers can have more confidence that they will avoid further interest rate rises during 2007 following the Reserve Bank's quarterly monetary policy statement this week, but further hikes can't yet be ruled out. The RBA says that it feels more certain that its tentative forecast of recent months, that inflation would ease and that no more rate rises would be needed, is the more likely course of events in the months ahead. The latest CPI figures for the December quarter certainly showed some easing in price pressures with underlying inflation settling back within the RBA's 2-3 per cent target band. This is the key indicator for the RBA board and means interest rate rises are off the agenda for the moment. But 2007 has begun with no real resolution of the confusing economic picture that sees the jobs market booming and unemployment falling to a new three-decade low of 4.5 per cent, yet wages and prices seemingly contained and economic growth at sluggish levels. The two-speed economy is also muddying the economic waters with the big resource states booming and south-eastern states struggling. While the never-ending jobs boom goes on, skilled labour shortages and other capacity constraints will continue to threaten inflation, a point the RBA board makes and one which ensures it won't let their hands stray too far from the interest rate lever. In the home lending market, there are signs that the downturn in lending finance commitments in the second half of 2006 might be turning around. Both the value and number of loan commitments looked better in recent months with the total value of commitments rising 1.9 per cent in December and loan numbers stable after falls in previous months. It's a different story in personal credit, down 1 per cent in December, and business lending, down 4 per cent - continuing a downward trend since October.