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Heat rises on interest rates Email Printer friendly version Normal font Large font Jason Koutsoukis October 21, 2007 THE prospect of rising interest rates will dominate week two of the election campaign, with inflation figures on Wednesday expected to show the economy running hot. This could force the Reserve Bank board to lift rates for the sixth time since the last election when it meets on Melbourne Cup day, dealing a blow to the Prime Minister's election chances. Mr Howard won the last election after promising to keep "interest rates at record lows", but a rise of 0.25 percentage points would lift the cash rate to 6.75 per cent — the highest since July 1996. It would also add about $50 a month to the cost of servicing the average mortgage loan, wiping out gains in foreshadowed tax cuts. The last time the Reserve Bank cut interest rates was in December 2001. In an exclusive interview with The Sunday Age, Labor leader Kevin Rudd slammed Mr Howard for breaking his key 2004 election promise. "The problem with Mr Howard's negative fear campaign is that it's also been a deceptive negative fear campaign as demonstrated by the rise in interest rates," Mr Rudd said. "Those five interest rate rises have cost working families paying off an average mortgage in excess of $2000 a year and that's all a broken promise." Inflation figures due out on Wednesday are expected to show underlying inflation at between 0.8 per cent and 1 per cent for the September quarter, and between and 2.7 and 2.9 per cent for the year. Because the Reserve Bank's main objective is to keep inflation between 2 and 3 per cent, on average, most economists agree that if Wednesday's data shows inflation running at 2.9 per cent for the year, then the Reserve will be forced to raise rates as soon as possible. Several senior market economists said a November interest rate rise was likely, with several others expecting a rise in December or early next year. JPMorgan senior economist Stephen Walters said the bank told customers to expect a rate rise next month. The National Institute of Economic Research's Peter Brain said that while he did not expect rates to rise next month, "I do expect them to rise before the end of February". An interest rate rise will likely force up the standard variable rate on most home loans to about 8.57 per cent. That would add $44 a month for someone with a mortgage of $250,000, $62 a month for a $350,000 mortgage, $89 for a mortgage of $500,000 and $142 for a mortgage of $800,000. Mr Rudd said that if elected prime minister he would work to maintain downward pressure on interest rates by running strong budget surpluses. |
