The monetary policy deliberations of the RBA remain torn. At one level, there is a need for higher interest rates as the house price pick up continues, as the hard data on inflation is ticking higher and as evidence mounts that the pause in activity associated with the budget may have been temporary.

At another level, that pause in activity may still be the start of a move back towards sub-trend growth – time will tell, the Australian dollar is still very high – certainly relative to the terms of trade, the unemployment rate is elevated and while the global economy is looking only mediocre, commodity prices are trending lower which will no doubt act as a drag on national income.

So there you have it. Up, down; down, up. While such divergences and uncertainties persist, the best course of action is to leave interest rates steady and that is exactly what the RBA has done for the past year.

The issue for the RBA is that the level of interest rates is extremely supportive for growth and that to cut rates from these already very low levels would require extreme news on growth, inflation, unemployment or from global markets. This still might happen, but it is unlikely. With the Dun & Bradstreet survey of business expectations turning higher, the Roy Morgan ANZ index of consumer sentiment higher, retail sales and credit growth also ticking up in recent times, the likely next move in official interest rates is up but it is unlikely to happen any time soon.

Adding to the case for higher interest rates is the lowering of credit costs which has seen banks deliver lower mortgage interest rates even though official interest rates have been on hold. The RBA will tolerate only so much of this undercutting of monetary policy before it acts, in much the same way it railed against the bank’s higher cost of funds during and immediately after the crisis by cutting official interest rates by a greater amount that would normally have been the case.

The next big items to determine when and which direction that RBA will move interest rates are the capital expenditure data at the end of August, the national accounts in early September and the monthly run of labour force data, including those released this Thursday. If these show any upside momentum, the RBA could well be moving to a clear tightening bias before year end.

Like all of us mere mortals, the RBA will be watching the data and reacting to it before being sure about delivering any interest rate change.