Rates on hold, but for how long

There is little chance of the Reserve Bank opting to raise interest rates at its August meeting next week and they look set to remain steady over the next few months. With inflation remaining in check and a federal election climate now well established, it would be hard to make a case for a rate rise at the current time.

That's not to say the time might not be far away when rates do have to be raised. The last monetary policy statement issued by the RBA in May looks to have been somewhat optimistic with its relaxed stance on interest rates given a number of indicators suggesting interest rates are set too low.

The housing market won't lie down and looks to have well and after being checked by the two interest rate rises late last year looks to maintaining above average activity. The latest Housing Industry Association home sales figures show an overall rise of 10 per cent in June although apartment sales fell. Building approvals in June rose 1.5 per cent for new dwellings overall while those for houses rose 2 per cent. The RBA's own measures of credit growth show housing loans growing at 1.3 per cent in June. This is down on the 1.7 per cent in previous months and will be welcomed at the Bank but the board will want to see further falls to be comfortable the housing market is settling at sustainable growth levels.

Across the wider economy, strong consumer confidence and retail sales sees the trade deficit blowing out as we suck in record levels of imports. Personal credit continues to grow strongly, another 1.5 per cent higher in June. With unemployment so low, there is little to suggest this bumper performance is going to change any time soon and relatively low interest rates don't seem to sit well with this picture. Sure, the inflation genie remains firmly corked at the moment but there are more doubts as to whether it can remain that way next year and beyond amid such ongoing buoyancy in the economy.

All in all, the case for another rate rise does not appear to be going away although any move looks like being later rather than sooner with any move over the next three months quite unlikely.