Rates steady as economic threats fade

The Reserve Bank left official interest rates on hold at 5.5 per cent for December, no surprise to anyone. With a month off over the New Year, it will be February before the RBA meets again to discuss rate levels. But it's likely to be a fair bit longer than that before any move on rates is likely in either direction.

Inflation is well under control and the pressures of the high oil price have been well absorbed without undue flow on to consumer prices. A more efficient and competitive economy at home is making it much harder for goods and service providers to raise prices while the prices of many imported items continue to fall.

Meanwhile, economic growth has turned out to be weaker than anticipated during the September quarter, coming in at just 0.2 per cent. The lowest quarterly growth rate in two years was due in no small measure to a drop in government spending and investment. While business and housing investment were also weaker than expected but October indications suggest that both have picked up since October.

The jobs market bounced back in November, employment rising by 28,000 and halting two months of declines. The unemployment rate edged down to 5.1 per cent. So, on balance, the economy appears to be motoring along fairly well into 2006 with earlier fears of overheating in an oil-fuelled inflationary environment now easing.

But spare a thought for the Kiwis. The Reserve Bank of New Zealand raised interest rates again this week, which takes official interest rates across the Tasman to 7.25 per cent and mortgages over 9 per cent. With among the highest interest rates in the Western world in NZ currently, the Kiwi dollar is approaching parity the Aussie dollar.