No chance of October rate rise

The escalation of international tensions over Iraq means there is virtually no chance of the Reserve bank raising interest rates at its October meeting next week.

Overall the international picture continues to prolong the luxury of low interest rates for Australian borrowers. But this increases the likelihood that it will all end in tears by extending the over-done housing price boom.

Despite its stated intention to move rates up to more neutral levels, the RBA has held off since rises in May and June because of uncertainty in the international arena over global economic recovery and share market falls.
While these factors remain, they have now been overtaken by the build-up towards US confrontation with Iraq which may lead to war.

Already, a rise in oil prices over $US30 a barrel has begun to hit home to Australian motorists as petrol prices rise. A substantial rise in fuel prices raises the prospect of an inflationary hit to Australian economic activity, already suspected by many to be slowing.

An oil price spike would be even worse for the already-struggling world economy which could further set back a long-awaited economic recovery.
The US Federal Reserve left rates on hold this week and any move in the US rates is likely to be down given the worsening international outlook.

On the plus side for the Australian economy, however, was this week's release of August job vacancy figures showing a surprise 4.4 per cent lift. This gives reason for some cautious optimism on the employment and general economic outlook after other more gloomy indications on job vacancies recently and promising jobs growth in the August employment figures.

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