Fed: Homeowners brace as Reserve Bank decides on rates

AAP General News (Australia)
08-01-2006
Fed: Homeowners brace as Reserve Bank decides on rates

CANBERRA, Aug 1 AAP - The Reserve Bank board meets today to decide whether to lift
interest rates for the second time this year.

Most analysts are tipping the bank will increase rates by 0.25 percentage points when
it announces its decision on Wednesday.

Such an increase would add $35 a month to the average Australian mortgage and take
official interest rates to six per cent - their highest level since 2000.

The Reserve Bank is under pressure to curb borrowing, after the latest consumer price
index showed inflation surging 1.6 per cent in the June quarter on the back of high fuel
and banana prices.

Inflation is now running at four per cent - well above the Reserve Bank's target range
of two per cent to three per cent.

Any decision to increase interest rates this week would put political pressure on Prime
Minister John Howard, who went to the last election promising to keep interest rates low.

There is already talk of another interest rate rise towards the end of the year, following
this week's expected rise.

The government has urged the Reserve Bank to go easy on homeowners and recognise that
the spike in banana prices is a one-off inflation hit.

Deputy Prime Minister Mark Vaile yesterday urged the bank to leave rates untouched
because of the way drought was still hitting rural areas.

"Many farmers and the businesses that rely on primary industry in rural communities
have not had a chance to recover and remain burdened with high levels of debt," he said.

"An interest rate rise would disproportionately affect these people."

AAP dcr/pe/de

KEYWORD: ECONOMY DAYLEAD

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