The Reserve Bank this morning hiked official interest rates by a quarter of a percentage point to 6.25%, as tipped by analysts and economists.

The move is the third rate rise this year and the fourth since the last election. It takes interest rates to their highest points in six years and is expected to add $40 per month to a $250,000 loan.

The Prime Minister has been quick to go on the attack. “Housing interest rates now after the most recent increase this morning will still be lower than they were at any time in the 13 years of the Hawke and Keating government, when infamously housing interest rates hit 17%,” he has said.

The PM has also pointed the finger for the rate rise at the Labor state governments, claiming that their financial policies have contributed to the inflationary pressures cited by the Reserve as the reason for the rates rise.

While this is the eight successive rate increase since May 2002, it appears as if the punters are still giving the PM the benefit of the doubt. An ACNielsen poll published in the Fairfax press earlier this week found 45% believe the Coalition would keep interest rates lower, while only 29% back Labor. 55% rate the Coalition as better economic managers, compared with 32% for Labor.

And while the Government is feeling the heat today, events may well go its way.
Economists expect the RBA will now adopt a “wait and see approach” before further rate rises, with the drought and a slowing non-farm economy.

AAP quotes Commonwealth Securities chief economist Craig James as saying there are signs that credit growth is slowing, and the two rate hikes earlier this year are slowing down the economy. “If those factors continue that may mean that interest rates have indeed peaked and could come down into 2007,” James says.

A heartening thought, no doubt, for the PM.

Peter Fray

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