Borrowers to get a breather

There now appears little chance of a third successive monthly interest rate rise in July as the international threat to Australia re-emerges.

While the Australian economy remains strong, in the US it’s a different story with the recovery showing signs of weakening and the sharemarket entering a volatile phase amid falling investor confidence.

This has served to make global financial markets nervous and is likely to prompt a cautious approach to interest rates from the Reserve Bank when it meets next week. Keeping rates steady while it awaits international developments is the likely course of action. The US Federal Reserve also held interest rates steady this week which won’t harm the chances of a rates-on-hold decision here.

However, the RBA’s stated aim to lift interest rates to more neutral levels in the near term is unlikely to change. All the indications are Australia will continue to record steady growth this year, as supported by this week’s release of the latest Westpac-Melbourne Institute index of leading indicators.

There are more rate rises in the pipeline with standard variable home loan rates likely to rise above 7 per cent by the end of the year. The latest US-inspired jitters would have to get substantially worse to change the RBA’s mind.