Rates about right: Reserve Bank

Borrowers could well have several months to get over the shock of November's hefty
lending rate increases with the Reserve Bank of Australia (RBA) governor seemingly
in no haste to lift rates again.
The RBA's final board meeting of the year on Tuesday came and went as expected - no
change in the official cash rate at 4.75 per cent.
Central bank governor Glenn Stevens said that after the decision to lift the cash
rate last month and subsequent increases by banks, lending rates in the economy were
now "a little above average".
"The board views this setting of monetary policy as appropriate for the economic
outlook," Mr Stevens said in his traditional post-meeting statement.
Economists were not surprised by the outcome given the major banks had effectively
done some of the policy work for the central bank by jacking up their home loan
rates by 40 basis points on average last month.
Last week's economic data also indicated the economy was going through something of
a soft patch even before November's rate increase.
Gross domestic product (GDP) growth for the September quarter was insipid, while
retail sales unexpectedly tumbled in October.
Mr Stevens said there continued to be a degree of caution in spending and borrowing
by households, preferring to save their money instead.
He also reiterated that the strength of the Australian dollar would help to contain
inflation at the margin.
"Over the next few quarters, inflation is expected to be little changed, though it
is likely to increase somewhat over the medium term if the economy grows as
expected," he said.
He also indicated that the bank had not finished lifting rates just yet, noting that
national income is growing strongly as a result of the terms of trade hitting the
highest level since the early 1950s.
Business investment is beginning to pick up too, while jobs growth has been very
strong, and wages growth is likely to increase further over the coming year.
Macquarie Research division director Brian Redican said the statement seemed
specifically designed to be as "uncontroversial as possible".
"It is unlikely to shift anyone's views about the timing, or extent, of future
monetary policy tightening," Mr Redican said.
But, he said, financial markets were being far too complacent about the risk of
further rate hikes in the first half of 2011 - pricing in only one 25-basis-point
rate increase for the whole year.
"We think that RBA's focus on rising investment, employment and wages - as well as
their decision to avoid mentioning falling retail sales or weak GDP growth - neatly
encapsulates how those risks are skewed," he said.
Still, there was mixed data on the economy released on Tuesday.
The Australian Industry Group-Housing Industry Association performance of
construction index fell 1.8 points to 42.2 in November, well below the 50 mark that
separates contraction from expansion, with weakness reported across the sector.
But the federal government's commodity forecaster is still confident of a record
wheat harvest, albeit with reduced crop quality because of heavy rains on the
eastern seaboard.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)
expects total crop production to rise 22 per cent compared with last season, to 43.2
million tonnes.
Wheat production in 2010/11 is forecast to be a record 26.8 million tonnes compared
with 21.9 million tonnes in 2009/10.