RBA can give us a rate-rise holiday

GLENN Stevens can take a holiday - the Reserve Bank Governor won't need to raise rates next week.

GLENN Stevens can take a holiday - the Reserve Bank Governor won't need to raise rates next week.

In fact, the RBA may not need to raise rates again for the rest of the year.

One of the main reasons Mr Stevens can take a well-earned break is that vacations are being heavily discounted.

Speculation about an August 3 RBA rate rise, which would have been the seventh in 10 months, was based on a belief the central bank would have to act to contain inflation.

But the official quarterly inflation figure, published yesterday, was lower than expected, dragged down by bargain holidays.

The cost of domestic holidays fell 6 per cent, as measured by the June quarter Consumer Price Index published yesterday.

Westpac senior economist Anthony Thompson said discounting in areas such as travel and holidays helped keep overall inflation in check.

"The RBA will use this data to keep rates on hold on August 3, and now most likely for the remainder of 2010," Mr Thompson said.

The CPI for the June quarter rose 0.6 per cent, for an annual rate of 3.1 per cent. But the "underlying" rate of inflation is now only 2.7 per cent.

This is well below the 3 per cent level that can trigger inflation-taming rate rises.

"With an election upon us and inflation moderating nicely there is zero argument for or chance of a rise in the medium term," said Herston Economics head Clifford Bennett.

That scenario will be great news for Labor, which could ill afford a mid-campaign rise in interest rates.

"If you were thinking the RBA might make this federal election campaign interesting - think again," Macquarie Bank interest rate strategist Rory Robertson said.