By Greg Ansley
CANBERRA - Australia is bracing itself for a series of minor aftershocks following the decision of the Reserve Bank to break a five-year habit and increase official interest rates.
As expected, the bank lifted rates by 25 basis points to 5 per cent, prompting major banks to review retail lending rates amidst howls of outrage from business, industry and consumer groups.
Analysts also warned that yesterday's rise was likely to be only the first of two or three small increases over the next six to eight months as the bank moved to head off what it feared would be a resurgence in inflation from stronger-than-expected economic growth.
Although declining to speculate on further increases, Prime Minister John Howard pointed to a speech last week by Reserve Bank Governor Ian Macfarlane, in which he referred to "less sharp adjustments" in the future.
"It's very much a pre-emptive adjustment to make a contribution to constraining any inflationary pressures," Mr Howard said.
Australia's inflation rate is at present running at 1.7 per cent, below the bank's target range of 2-3 per cent, but the bank said yesterday the global economy had improved considerably since December.
"At that time world growth was expected to be weak, global inflation was tending to fall and international interest rates were declining," Mr Macfarlane said.
"The likelihood of some decline in Australia's growth and the continuing very low inflation allowed scope for monetary policy to move in an expansionary direction."
But Mr Macfarlane said a further strengthening of the global economy appeared likely in 2000.
The rise in interest rates was attacked by retailers and farmers and was described by Shadow Treasurer Lindsay Tanner as the result of poor economic policy and "another downpayment" on the GST to be introduced next year.
The housing industry said the decision was premature and a major blow to both builders and house-buyers, and the Chamber of Commerce and Industry said the move would only contribute to the the slowing of an economy that was already decelerating.
Chief executive Mark Paterson said the rise would create uncertainty about the future direction of interest rates and would dampen business confidence and economic activity.
Australians warned more rate rises likely
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