Australia's central bank hikes interest rates

SYDNEY (AFP) - Australia's central bank hiked interest rates by 25 basis points Wednesday to 6.5 percent to counter rising inflation.

The widely-expected move by the Reserve Bank of Australia (RBA) board took interest rates to their highest level in more than a decade.

The knock-on effect on mortgages will create a political headache for Prime Minister John Howard's government, which faces an election by the end of the year.
The rate rise is the first since last November but the fifth since Howard was re-elected in October 2004 after campaigning on a platform of "keeping interest rates low".
Expectations of a rate rise soared after June quarter price data showed core inflation, which excludes volatile food and energy prices, at 2.75 percent annually, near the top of the central bank's 2.0-3.0 percent target band.

Unemployment also remains near 33-year lows at 4.3 percent, retail spending remains strong and there are concerns that the economy is facing infrastructure capacity restraints, increasing inflationary pressure.

"The board judged that a somewhat more restrictive monetary policy setting was required in order to keep inflation consistent with the target in the medium term," RBA governor Glenn Stevens said in a statement.

The board had taken into account the recent turbulence in US credit markets, which could pose downside risks to the US economy, he said.
"While this will need to be kept under review, developments to date do not appear to have changed significantly the broader global outlook.

"Even with the US slowing down, forecasts of global growth have recently been revised upward.
"High world commodity prices remain an important source of stimulus to Australia's national income and spending," he said.