Australian Central Interest Rates Sky High

Not sure that John Howards Election interest rate strategy will work this election cycle. This is how he launched the 2004 Campaign.

“My friends, we all prize the financial security of our families. Let me say this, and it’s not just my view, but it’s a view frequently expressed to me as I move around this country talking to Australian families. Nothing threatens that security more directly than the prospect of rising interest rates. Rising interest rates dominates everything else when it comes to family security. Just a tiny upward movement in interest rates more than devours a few dollars of taxation relief or additional family benefits. There is no economic credential for office more crucial than a capacity to keep interest rates low.”

With the decision of the Reserve Bank of Australia to increase interest rates by 0.25 percent this week and another rise possible, Australia has some of the highest rates in the developed world.

Bank of Canada 4.5%
Bank of England 5.75%
Bank of Japan 0.5%
European Central Bank 4.0%
Swiss National Bank 2.5%
US Interest Rates 4.25%
Reserve Bank of Australia 6.5%

So much for John Howards promise of low interest rates that helped him to win the last election. This is the latest in a long line of interest rate rises since the lows of this government. Five interest rate hikes since the 2004 election; nine in total since the Reserve Bank of Australia began this particular tightening cycle in May 2002.

It may well be one too many for John Howard. Here are the some reasons why: This is the first time in the deregulation era that interest rates have been tweaked in an election year, let alone less than four months before polling day and with the threat of another around election time. The Prime Minister now has to move to Plan B when he talks economic management because he didn’t expect rates to go up now. At the start of the year, he was advised by his office that monetary policy would most likely remain on hold for all of 2007. To now seek to blame the states for making long term investments in infrastructure funded by debt as the source of interest rate rises is to say the least disingenuous

One of the first things that the Howard Government did when they were first elected was to make the Reserve Bank independent. They may be regretting this now.

Thanks Nicholson and Meganomics in the Australian