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Prime Minister John Howard set up a potential clash with the central bank Wednesday as economists predicted a damaging interest rate hike in the midst of campaigning for a November 24 election.
Howard signalled in an interview published Wednesday that he would continue to pursue economic growth, ignoring concerns that rapid expansion could fuel inflation and prompt the Reserve Bank of Australia to lift rates. The prime minister said there was no reason Australia's 16-year period of economic growth could not be extended indefinitely.
"Why do we worry all the time that we can't succeed? Growth is good, we should aspire to it," he told the Sydney Morning Herald. Howard, who is battling a huge opinion poll deficit as he campaigns for a fifth term, said if re-elected he hoped to reduce unemployment from its current 33-year-low of 4.2 percent to 3.5 percent, effectively reaching full employment.
He brushed aside suggestions that an election pledge this week for 34 billion dollars (30.6 billion US) in tax cuts would fuel inflation and increase the risk the Reserve Bank would lift interest rates.
The independent central bank has pursued a goal of keeping inflation within a 2.0-3.0 percent target band since 1996 but Howard said its founding charter bound it to pursue the same goal of full employment that he was seeking.
"I don't think that the Reserve Bank is willing to slow economic growth," he said. "I think that's a misreading. The bank's charter is to maintain full employment."
The central bank lifted rates 0.25 points to 6.50 percent in August and is regarded as an even chance of moving again on November 7 if September quarter inflation data due out next week is higher than expected.
An interest rate hike in the midst of an election campaign would be unprecedented in Australian political history and deal a body blow to Howard's re-election chances in a poll where mortgage belt votes are vital.
Reserve Bank governor Glenn Stevens earlier this year stressed his board's independence and said it was "absurd" to suggest it took political considerations into account when deciding monetary policy. "As far as I'm concerned we are not interpreting our decision through the prism of an election," Stevens said at the time.
Westpac senior economist Bill Evans said quarterly inflation of 0.9 percent or more would likely trigger action from the Reserve Bank. "A rate hike on November 7 is therefore entirely possible," he said.

Copyright Agence France-Presse, 2007

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