RBA wants to, but can’t

It appears that the Reserve Bank board may again next month be forced to hold off on pursuing its wish to see interest rates lifted to more neutral levels.

Again, the news from overseas suggests caution is the best course of action currently and the RBA will be hesitant to raise rates, despite the Australian economic outlook remaining quite bright.

The signs of US recovery are more ambiguous than ever with further signs of weakening. This combines with growing tension over the looming confrontation with Iraq and ongoing share-market nervousness to hang a cloud over our own economic performance into 2003.

There are signs of the limp international economy already dragging us down as exports fall. In the immediate future this influence is likely to worsen before it gets better.

Employment figures continue on their erratic course, are we really to believe the economy can shed 67,000 full-time jobs in June and then generate 87,000 new ones in August? Employment figures it seems can only be judged in trend terms and it does appear there is jobs growth continuing although on a more moderate path than the August figures suggest.

Along with signs of an uplift in business investment and strong consumer spending, the domestic outlook remains quite healthy despite the long-anticipated slowdown in housing.

But it does not appear to be enough to tip the scales in favour of another rate rise just yet and at this stage rates should stay on hold in October.