Possible Election Interest Rate Rise

Submitted by Marco on 25 October, 2007 - 11:39

Australian interest rates see a possible election interest rate rise as a result of yesterday’s inflation economic data. The Consumer Price Index figures released showed headline inflation rose by 0.7 per cent in the September quarter - for an annual rate of 1.9 per cent inflation for the Australian economy. The interest rate decision is to come on Melbourne Cup day and many economists are predicting a 25 point increase (0.25%) which would be the sixth successive interest rate rise. The RBA officials meet on Tuesday 6th November and the decision is released at 9.30am the following day. An Australian election is coming up on the 24th November 2007. "I am not going to speculate, but I'm reminding you and I'm reminding everybody that it's the lowest [consumer price index] on an annual basis since December 1999," Prime Minister, John Howard said. "I nonetheless point out that the agreement that was made between the Government and the Reserve Bank... provided as a target that we would keep consumer prices between a band of 2 to 3 per cent.

As a reaction to the higher inflation rates, the Australian dollar rose to 90.29 U.S. cents as of 11:35 a.m. in Sydney compared with 89.95 cents immediately before the report and 89.38 cents. Australian government bonds fell after the report, pushing the yield to 6.66 percent from 6.61 percent before the report. Bond yields move inversely to prices. The market had priced in an 83 percent chance of a rate rise to 6.75 percent at the RBA's next policy meeting in early November. We could be looking at a possible interest rate rise during an election campaign.