KEY POINTS:
Canberra - Australian Prime Minister John Howard has defended the government's reputation for strong economic management, after yet another interest rate rise today.
The Reserve Bank of Australia raised interest rates by a quarter of a percentage point to 6.75 per cent.
It marked the sixth increase since
the 2004 election and will add around a further A$40 ($48) per month to the average standard variable mortgage repayment.
Mr Howard apologised to homeowners, saying the reason rates had increased was because there were concerns about inflation in the economy.
"The continued strength of the economy, the very fact that our economy is growing strongly, is a predominant cause for this interest rate increase," Mr Howard said.
Mr Howard said the drought and high oil prices were other factors affecting the economy.
"Another cause is the pressure coming from the drought with its impact on food prices, which is ongoing, and that drought has been with us for a very long time and it is obviously feeding into the underlying inflation rate," he said.
"The third factor quite plainly is the high level of oil prices. They were at either record or near-record levels overnight.
"When you put all of those three things together they are the principal causes of this increase in interest rates."
Mr Howard said the drought and high oil prices were other factors affecting the economy.
"Another cause is the pressure coming from the drought with its impact on food prices, which is ongoing, and that drought has been with us for a very long time and it is obviously feeding into the underlying inflation rate," he said.
"The third factor quite plainly is the high level of oil prices. They were at either record or near-record levels overnight.
"When you put all of those three things together they are the principal causes of this increase in interest rates."
Mr Howard said the RBA's statement demonstrates the government does not influence central bank decisions.
"You can see this is a very authentic and credible statement of the economic facts because it has come from the governor of a central bank who has just demonstrated very powerfully the complete independence of that central bank," Mr Howard said.
"If anybody thinks for a moment something in this statement is designed to serve the interests of the government they couldn't be more wrong."
Economists expect the central bank could raise rates even further given the strength of the economy, possibly as early as December.
The RBA said inflation in Australia has increased and that price pressures remain in the economy even though wages growth has been contained.
"By the March quarter of next year, both headline and underlying measures of inflation are likely to be above three per cent," RBA governor Glenn Stevens said.
It said demand and output growth had also risen and there were few signs of that strength diminishing.
"Growth in labour costs has been contained so far, and high levels of investment are adding to productive capacity in some sectors," Mr Stevens said.
"The rise in the exchange rate will help to contain pressure on prices.
"But growth in aggregate demand will, nonetheless, need to moderate if inflation is to be kept to two to three per cent in the medium term."
Economists said the central bank's concerns indicated interest rates could rise further in coming months.
HSBC chief economist John Edwards said the RBA was likely to raise rates again in March next year, as strong demand and a tight jobs market put upward pressure on inflation.
"I think we'll have a break before Christmas but we'll have another one in March," he said.
Economists were unanimous in their expectation that rates would rise today, following a meeting of the central bank board yesterday.
"No doubt, the increase in underlying inflation in the September quarter left them with little alternative," Dr Edwards said.
"And they cited that as a major reason along with of course the strength of other indicators we've seen in the Australian economy and employment."
Dr Edwards said problems in the US sub-prime mortgage market were unlikely to affect Australia, which would mean make further interest rate rises in 2008 a possibility.
Interest rates have now climbed for the 10th successive time since May 2002 and six times since the last the 2004 federal election, when the government argued that interest rates were lower under the Coalition than Labor.
It is the first time the central bank has raised rates during an election campaign.
- AAP