By GREG ANSLEY
CANBERRA - Australia's Reserve Bank has touched the monetary brakes in response to better-than-expected economic growth, inflation edging up and rising household debt.
For the fifth time since November the bank yesterday lifted the cash rate by 0.25 per cent.
The new rate of 6.25 per cent has angered business and triggered warnings of further GST-inspired price rises from the federal Opposition.
The bank's action follows figures released last week that showed a four-year CPI high of 3.2 per cent for the year to June and a 4.5 per cent surge in wages for the May year. The level of these figures surprised most analysts.
The latest increase was condemned as premature and unnecessary by the struggling housing industry, which fears a flow-on from the new rates that will lift average mortgages repayments by about $A16 a month ($NZ20), taking the increase since November to about $A120.
The industry has blamed interest rate rises for falls in home lending and new housing, which contracted by a seasonally adjusted 13.4 per cent in June.
The new base rate came as further evidence of the strength of the economy was provided by statistics showing a 10 per cent cent rise in retail spending in the year to June.
Reserve Bank Governor Ian Macfarlane said the decision to increase rates had been taken after considering the higher-than-expected economic growth, the past year's inflation and the growth now forecast in wages. He said both GDP and employment growth pointed to continuing strong economic growth, and that while some areas of domestic demand such as housing were falling, a robust world economy would push exports past their 28 per cent rise in value over the past year.
Mr Macfarlane said that present underlying inflation of about 2.5 per cent was within the bank's range, but further increases were expected.
Excluding the direct effect of oil price rises, manufacturing prices rose more than 4.5 per cent in the year to June, their fastest rate of increase for a decade.
Wage movements were difficult to read, but while the bank considered growth to be moderate, labour costs were likely to rise in the year ahead.
He said that even with earlier interest rate rises, the pace of credit expansion had increased in the past few months, with credit outstanding growing 13 per cent in the June year and at a rate of 15 per cent over the past six months. Household debt had risen even more rapidly.
But Australian Chamber of Commerce and Industry chief executive Mark Paterson accused the bank of wielding a blunt instrument, saying the decision would push up prices in the marketplace and that would clearly harm some businesses.
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