Interest rates appear firmly back on hold

Borrowers can breathe easier about rising interest rates for the time being after the release of the Reserve Bank's May monetary policy statement today. It reveals the RBA is more relaxed with the state of the economy than it has been for sometime and any leaning it may have had towards raising rates further has gone for now.

No rises in official interest rates would mean variable home loan rates staying steady. Fixed rates, however, move according to international influences and those on offer currently are rising seemingly every week as rest of the world moves into a rising interest rate environment.

The RBA says a combination of a rapidly strengthening world economy, a buoyant local economy, an end to the rise in the Aussie dollar, ongoing low inflation and the apparent easing of the booming housing market are all make for a virtuous climate good news. Hence, the possibility that rates will need to be raised further this year has receded. “Developments over recent months suggest that the chances of achieving well-balanced growth and a more restrained pace of credit expansion have improved,” the RBA statement says.

Inflation is the ultimate key to interest rates and on that score the RBA seems quite comfortable, predicting it still has further to fall this year. With its prediction that, amid rising prices next year, it will be the end of 2005 before inflation is back up to 2.5 per cent, it appears there will be little need this year to act with higher rates.

Feeding in to the rosy assessment this week were building approval figures showing another fall in March. The estimate for total dwelling approvals units fell 4.4 per cent to 13,934, seasonally adjusted. There was a rise in approvals for houses on the back of rises in Victoria (8.4 per cent) and Queensland (4.2 per cent).