Goldilocks conditions keep rates on hold

The latest round of economic data out this week support the Goldilocks nature of the economy that’s emerged in recent months – one that’s not too hot and not too cold. This “just right” scenario has eased fears of further slowdown in economic growth in this year, or conversely, that a strong economy is might force inflation up.

For borrowers, it means no change in interest rates from the Reserve Bank on Tuesday and quite probably for the next few months ahead. But the RBA’s bias towards rate rises rather than falls will still stay in place on the strength of the latest data.

Retail trade grew a quite healthy 0.7 per cent in February, and with the Bureau of Statistics revising the January and December figures upwards there have now been three months of healthy seasonally-adjusted growth in retail sales after a worrying slide in the preceding months. We’re unlikely to see a return to the solid, consistent growth in retail of past years as consumers struggle to get on top of their debt burden, but this mild recovery in spending should help allay fears of further economic slowdown.

The number of building approvals for new houses and apartments rose 2.2 per cent in February, but is still down 6 per cent on the levels of a year ago. After a downturn in the second half of last year, the trend in approvals is not really clear in early 2006 although approvals for houses alone are up over the last two months. The value of approvals is also still on the up.

The Reserve Bank’s credit figures for February show housing, personal and business borrowing all rose in the order of 1.4 per cent during the month. These are quite healthy numbers, especially compared to the last six months, and the only concern is that the RBA won’t be wanting to see these growth rates lift much further, otherwise rate rises come back into play.