The Australian Federal Reserve all but guaranteed a change of Federal Government in Australia in the election coming up on 24th November.
They announced a 0.25% increase in the official rate to 6.75% following up from the last rise in August 2007. Prior to that the last rise was November 2006, so Australia has been more stable than most.
The rate rise was foreseen by many market commentators as a result of higher than expected inflation numbers, and the Reserve Bank have used that as the excuse they needed to sneak a rate rise in just before the Federal Election.
In truth, this was probably unnecessary and they could have followed the conservative approach of the US which has dropped interest rates twice for a total of 0.75% reduction, since the Sub Prime crisis sent shivers through financial markets.
This rate rise will do significant damage to the Howard Governments re election hopes and it may well be the final straw. Already significantly behind in the polls, this rise could be the killer blow that sees John Howard end perhaps the most financially successful period of Australian politics.
Having brought Australia to be debt free, profitable and with a steadily growing diverse economy was obviously not enough to gain the support of the Federal Reserve.
The rate rise may dampen the property markets a little, however the strong continuing immigration is the primary driver and likely to do little to stop the inevitable strong growth phases being experienced on the East Coast.
The Australian dollar is likely to strengthen against the US in the short term as the interest rate gap has widened, but this will only be bad news for exporters including the strong mining industry.
Expect continued volatility here while the markets decide which way things may go in the coming months after the Australian election and moving into the US Presidential campaign.
Click here to read the Federal Reserve Banks rationale behind the rise.
