Interest rates rise once again

In a politically charged decision, the Reserve Bank has lifted interest rates for the first time during a federal election campaign.

In a move that underscores its independence, the country's central bank raised its official cash rate by a quarter-point to 6.75 per cent, the highest rate in 11 years.

- theage.com.au

The way I see it, this was always going to happen.

Why? Back in June when the government announced their federal budget for the 2007-08 year, they were implementing expansionary fiscal policy.

This means that compared to last year, they were putting more money back into the economy, stimulating economic growth and thus putting upward pressure on inflation. With Australia's economic growth just within the 3-4% target of sustainable economic growth and last year's rate rise to 6.25% to deal with inflation, I predicted in July that this wouldn't end well.

In addition, giving tax cuts to higher income earners, leaving them with more disposable income and in effect allowing them to spend more. Encouraging people to spend more is only going to increase economic growth and inflationary pressure further.

When I found out today that the cash rate had been raised by the Reserve Bank to 6.75% i wasn't at all surprised. It only reaffirmed my predictions.

Remember the Liberal government's 2004 election scare campaign based on interest rates going up if a Labor goverment? Interest rates increasing three times within the past 18 months, seems like some sort of political backfire to me. Evident in Labor's new TV advertisement, they've been quick to capitalise on this recent change in the economy.