RBA confirms rates in pause mode

The Reserve Bank has confirmed it still has its finger on the interest rates trigger in its quarterly monetary policy statement released last Monday. In leaving rates steady in February the RBA board took the opportunity to await further evidence on the impact of the pre-Christmas rate rises.

And more has emerged in the shape of the December housing finance figures showing the number of new owner-occupier loans fell again. The RBA may have been hoping for a more decisive figure than the small 0.8 seasonally-adjusted fall. This comes on the back of larger falls in October and November but still lends some weight to predictions that the housing and credit markets have passed their peak.

But in any case, the Reserve Bank has signalled that more work needs to be done, its statement saying that “it is too early to be confident that [declining home lending and slowing house prices] represent a definitive change in trend.” The latest figures won't have changed that. Confirmation that consumer sentiment remains at its highest level in ten years this month suggests there is a danger that borrowing could take off again if the RBA were to call halt to its tightening campaign with the official cash rate at 5.25 per cent, and still accommodative.

On the employment front, there was yet more jobs growth in January and unemployment sticking below 6 per cent while the forward-looking ANZ job ads survey saw an increase in advertisements in January. This all describes an economy firmly on the up and it seems the next rate rise is not going to be far away.

The RBA statement also reiterates that while inflation is currently low, it's expected to rise when the one-off effects of the rising dollar work through the economy and that “monetary policy strategy needs to take this longer-term trajectory into account”. In the US, Federal Reserve chairman Alan Greenspan's Congressional testimony reconfirmed that interest rates wouldn’t be going up anytime soon, despite the ongoing economic recovery, while a flow-through to jobs growth is awaited. This can only further boost Australia's own growth outlook. At this stage, a 0.25 per cent rate rise is likely in March.