Borrowers can rest easy this month

Despite further evidence of a robust Australian economy, the Reserve Bank is unlikely to raise to interest rates at its monthly meeting on Tuesday.

The gloomy and volatile state of world share markets begs a cautious approach from monetary authorities around the world at the moment and the RBA is not likely to go against the grain.

However, if the latest domestic economic indicators are any guide, it may well resume on the path to higher rates later this year assuming markets eventually settle down.

Retail sales rose 0.9 per cent in June, the thirteenth consecutive monthly increase keeping consumer spending buoyant. Household debt also rose to a new record high in June, supported by a lift in home borrowing, up 1.9 per cent.

New housing approvals continue to defy gravity jumping 3.5 per cent, although the figure was probably boosted by a last-minute rush for the first home buyers' grant. The building industry is confident that after the third consecutive monthly rise in approvals there is plenty of work in the pipeline for the rest of the year at least.

It appears more than the two rate rises we have seen will be needed to rein in housing and household borrowing levels.

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