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Thu, Nov 09, 2006 - Page 10 News List

Australian central bank increases interest rates


Australia's central bank announced on Wednesday its decision to boost a key interest rate by a quarter of a percentage point to 6.25 percent, a decision Prime Minister John Howard said signaled a "more challenging" future for economic growth.

The decision by the Reserve Bank of Australia was in line with market expectations and marks the third rate rise this year. The bank last lifted the official cash rate by 0.25 percent in August, and also in May.

Reserve Bank governor Glenn Stevens said in a statement his board decided at its monthly meeting on Tuesday there was a risk of inflation exceeding the bank's target range of between 2 and 3 percent.

"In the September quarter, the underlying inflation rate was around 3 percent, up from 2.5 percent at the end of last year, and it is likely to remain around that rate in the near term," he said.

Yesterday's rate rise is politically embarrassing for Howard's center-right government which campaigned at the 2004 election on its ability to keep rates low.

Howard said the rise signals "a new and more challenging period of economic management in Australia," which has seen unprecedented growth over the past 14 years.

No pain, no gain

"I know it will cause pain for some people," Howard told a media briefing in Canberra. "I fully understand that."

"Unfortunately there are occasions when the Reserve Bank of Australia, which sets interest rates in this country, must lift interest rates in order to prevent inflation taking hold and thereby maintain our financial prosperity and the long-term strength of the Australian economy," he said.

The eighth hike since the bank began its tightening cycle in May 2002, it aims to contain inflation which has accelerated as a tight labor market, higher oil costs and supply bottlenecks combined to push up prices.

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