KEY POINTS:
CANBERRA - Today, as the rest of Australia comes to a virtual halt for the Melbourne Cup, the board of the Reserve Bank will gather to review the state of the economy.
In the unanimous view of economists, analysts and commentators, the board will increase the official interest rate by 25 basis points to 6.75 per cent, the sixth rise since Prime Minister John Howard won his fourth term in 2004.
That victory, and the expected announcement of the increase tomorrow, will haunt Howard as he desperately tries to close an almost impossible gap on Labor in the final three weeks of the campaign for the November 24 election.
Howard promised voters in 2004 to keep interest rates at a record low and, as today's meeting and its likely outcome neared, he tried first to deny making the promise, then admitting it had been made, but not by him, and, finally, performing backflips to turn it to his advantage.
He needs to do this as economic management is his greatest strength, and Labor leader Kevin Rudd is breathing down his neck in polls on the subject.
Rudd is also preferred Prime Minister, and yet another poll yesterday showed that Howard has failed to make any real gains on Labor's crushing lead.
A Galaxy poll in News Ltd newspapers said Labor had inched forward another point to a 54 per cent to 46 per cent lead in the two-party preferred vote that determines the outcome of Australian elections.
The irony is that the economy continues to pump, as it has for the 11 years Howard has been in power. Further evidence of that came yesterday in an Australian Chamber of Commerce and Industry business expectations survey that showed confidence and investment are at the highest levels in 13 years.
Further, the ANZ bank's latest survey shows that the total number of jobs advertised in major city newspapers and on the internet last month rose to an average of 254,554 a week - the highest number placed in any month since the survey began.
Unemployment is also running at a 33-year low.
But the expected rate rise will place further pressure on families already struggling with higher living costs, and who are being reminded constantly by Labor of Howard's 2004 promise.
Analysis by the Australian newspaper of more than 9000 responses to an online survey reported that even in his own seat of Bennelong, Howard's credibility has taken a hit.
"While many Bennelong voters will support the Prime Minister because they admire his record, those unwilling to vote for him widely cite doubts over his level of honesty as a key point of hesitation," the newspaper said.
Faced with the apparent inevitability of a further financial hit on the crucial mortgage belt less than three weeks out from the election, Howard is now sharply adjusting his strategy to use the rate rise as a plus.
His argument is that the very strength of the economy has combined with pressures beyond his control - the subprime lending crisis in the United States, oil prices and the drought to force the Reserve Bank's hand.
Tied to that, Howard has notched up his fear campaign, playing on memories of previous economic mismanagement by Labor.
"My argument to the Australian people will be we are entering a slightly more challenging phase of economic management and that this is not the time to substitute a very experienced, successful Government with a group of people who will be very inexperienced," he said.
"[We have] a proven record which tells us right now housing rates are lower than at any time under the former Labor Government."
Rudd in turn accused Howard of trying to con voters by earlier promising to keep interest rates at record lows, and now claiming that inflationary pressures were unavoidable.
"What I see increasingly is Mr Howard quite arrogantly pushing aside all responsibility for the failures of inflation in the Australian economy."
