Rates likely to remain steady in June

The chances of further interest rate rises this year remain finely balanced at the moment but the Reserve Bank is likely to leave rates on hold at its next monetary policy meeting coming up on June 7.

But the real clues on what the RBA will decide in June will emerge over the intervening week when the latest GDP, retail trade, private credit, house prices and building approvals figures all see the light of day.

Over the past week, the March quarter capital expenditure figures were released showing that actual and planned business investment is fairly strong and we can expect something close to 10 per cent this financial year.

These ‘capex' figures take on more importance in the outlook for interest rates given the ‘capacity constraints' identified in the economy with the potential for fuelling inflation. More investment by business in machinery, equipment and plant is important in helping supply keep up with demand. So these figures might suggest the capacity pressure on inflation might not be as great in 2005/06 as first feared.