Australian economy keeps growing, but RBA will not lift interest rates

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You know when you see the headline “Economic growth to accelerate” then it is bound to be followed by a veritable tsunami of metaphors emphasising the growth of the economy.

And so it was the case with the report from AAP News, it told us that it was “full steam ahead for the Australian economy” and that the “recent strong run of economic growth will continue to put pressure on interest rates.”

Hang on, according to the economic chatteratti a few days ago there was little to no chance of a further rise in interest rates for at least the rest of this year and probably longer.

The Westpac-Melbourne Institute index showing an indication of Australian economic growth pointed towards an annual economic growth rate of 5.7%.  Not bad for a developed nation, even if much of the growth is still coming as a result of the resources boom and consequently the strong Australian dollar.

Westpac chief economist Bill Evans told AAP News, “The index continues to point to an acceleration in economic growth over the next 39 months.”  He went on to say, “Resource exports are set to build strongly and interest rate stability is likely to see the housing market surge after a number of flat years.”

As for the potential for rates to rise, Evans says, “A May move would now seem to be out of the question while an August move, only two months before a likely election and following two very low inflation numbers for December and March, seems a big stretch.”

As far as Evans is concerned, rates will not rise any more until early 2008.  That probably confirms our belief that the RBA are more likely than not to sit on their hands in the coming months as the roaring Australian economy expands without anyone prepared to even dabble with the brakes.

Kris Sayce
The Daily Reckoning Australia

Should the RBA lift interest rates? Leave a comment below.

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
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