Australia raises rate to 11-year high

Story Highlights
Reserve Bank of Australia lifts key interest rate to 6.75 percent
A 33-year low in unemployment and strong commodity prices help influence decision
It's the sixth consecutive rise since PM John Howard was re-elected in October 2004
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SYDNEY, Australia (AP) -- The Reserve Bank of Australia lifted a key interest rate to an 11-year high of 6.75 percent Wednesday, a move analysts say could hurt Prime Minister John Howard's shot at re-election later this month.

Office workers walk past the Reserve Bank building in Sydney, Australia.

After meeting Tuesday, the bank said it chose to lift the benchmark cash rate from 6.5 percent after recent data showed underlying inflation surging above the bank's 2 to 3 percent target range.

A 33-year low in unemployment, strong commodity prices and strong growth in non-agricultural sectors of the economy added to the case for a hike.

In a statement, Reserve Bank Governor Glenn Stevens said the pace of economic growth had increased and that both the consumer price index and underlying inflation were likely to be above 3 percent in the first three months of next year.

Wednesday's decision, which was widely predicted by economists, is the 10th interest rate rise since May 2002 and falls just shy of the 7.5 percent rate in place when Howard's government first took power in 1996.

The rate increase is the first ever during an election campaign and is the sixth consecutive rise since Howard was re-elected in October 2004 on a promise of keeping interest rates low.

Australians are due to vote November 24, and polls indicate that the main opposition Labor Party will defeat the 11-year-old coalition government.

Responding to the decision, Howard credited the strength of the Australian economy but acknowledged that the bank's move would have "negative consequences for a lot of borrowers."

Many economists predict the Reserve Bank will lift rates again, possibly as early as December, given the strength of the economy and the rising pace of inflation.

The Housing Industry Association's chief economist, Harley Dale, said around 100,000 Australian households would fall into financial stress as a result of the latest interest rate rise.

New home buyers were devoting, on average, 25 percent of their household incomes to their mortgages after the last election, Dale said. That figure would jump to around 33 percent on the back of the latest hike. E-mail to a friend