Australian Prime Minister John Howard, fighting for his political life at upcoming elections, apologized to voters yesterday after the central bank hiked interest rates to an 11-year high.
The unprecedented timing of the rate rise was a bombshell for Howard as he struggles to catch a resurgent opposition ahead of the Nov. 24 polls.
He won the last election in 2004 on a promise to keep interest rates low, but since then the independent Reserve Bank has raised them six times.
The latest hike saw rates rise 0.25 points to 6.75 percent, a level not seen since Howard came to power in 1996.
The prime minister immediately moved to placate the mortgage-belt voters whose vote is regarded as key to deciding the polls, but whose finances have been stretched as rates edge ever higher.
"I would say to the borrowers of Australia who are affected by this change that I am sorry about that and I regret the additional burden that will be put upon them as a result," he told reporters.
The widely predicted rise, aimed at curbing inflationary pressures, is the first ever hike during a general election campaign.
The Reserve Bank said the move was necessary after stronger-than-expected prices data in the last quarter showed inflation was set to break out of its 2 percent to 3 percent target band by March if no action was taken.
Economists predict at least one more rate rise, given the strength of the economy and the rising pace of inflation.
The government has campaigned hard on the slogan "Go for growth," but the downside of expansionary policies has been a surge in inflation.
Howard, trailing in opinion polls and facing the prospect of a landslide loss to the center-left Labor party, said his conservative government remained vastly more qualified than its rival to run the economy.
Treasurer Peter Costello echoed Howard's apology and claimed Labor leader Kevin Rudd would introduce policies that would lead to higher interest rates, inflation and unemployment if elected.
"The important thing now is to have an economic team that can manage the challenges in the future, because otherwise there could be a lot more pain on families," Costello said.
A poll in the Australian daily appeared to show the government's message was getting through to voters, with 51 percent believing Howard was a better economic manager than Rudd, on 32 percent.
Labor countered by rushing out TV advertisements citing Howard's 2004 rate pledge and labelling him out of touch for his comment earlier this year that "working families in Australia have never been better off."
Rudd said each of the six rate hikes since the last election represented a broken promise to the Australian people, and the prime minister's contention that only he could run the economy had no credibility.
"Mr Howard can no longer be trusted on interest rates," Rudd said.
Economists said the Reserve Bank's warning that underlying inflation was likely to push up next year left the door open for more rate rises.
The bank said fallout from turmoil in global credit markets had been less pronounced in Australia than other parts of the world, meaning that domestic borrowing remained high.
"Having weighed both the international and domestic information available, the board judged that a further increase in the cash rate was needed now in order to contain inflation in the medium term," it said.
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