Turning point for rates near

The Reserve Bank's decision to keep interest rates on hold this month has further raised expectations that the easing cycle may be at or near its end.

This has been reflected in movements in fixed rates, via the bond market. BankChoice has seen some of the lower home loan fixed rates edging higher, especially over the longer terms. Westpac, Aussie Home Loans and AMP are among the latest to have increased; Westpac lifting 3 and 5 year rates 0.2 to 6.59 and 6.79 per cent respectively, Aussie also up 0.2 to 6.8 and 6.95 per cent.

This underscores our earlier observation that with a growing feeling that the interest rate cycle is on the turn we may have seen the best fixed rates on offer around Easter, although the surprise US rate cut in April confused the picture somewhat.

The RBA appears to have taken a sensible pause for effect after three cuts; it is too early to tell just what impact the earlier rate cuts will have to alleviate the threats to growth. It takes over a year for the benefit of rates cuts to fully work through the economy and it is this time lag that makes the RBA's job so difficult.

The release of building approvals figures for April reveal a housing construction market still bouncing along the bottom. Despite a 6.7 per cent rise in total dwelling approvals, there was an 8.2 per cent fall in private house approvals, where the Government is hoping to kickstart the economy via the $14,000 First Home Owners Grant. Firm evidence of recovery in house construction is yet to appear, although April is too early for the grant increase to have had a substantial effect on the figures.

This is just one of the question marks over our economic growth outlook this year and Monday's quarterly statement on monetary policy from the RBA will tell us more about it's current thoughts.