PM's friendly reminder to RBA

KEVIN Rudd has reminded the Reserve Bank of his plan to massively boost the budget surplus and tackle inflation, ahead of a likely interest rate rise.

PRIME Minister Kevin Rudd has reminded the Reserve Bank (RBA) of his plan to massively boost the budget surplus and tackle inflation, ahead of a likely interest rate rise.

The RBA is widely tipped to lift rates to an 11-year high tomorrow to try to keep inflation in check.

Mr Rudd said tonight he respected the independence of the Reserve Bank and would not direct the government's representative on the bank board, Ken Henry, to argue a particular case tomorrow to influence the rates decision.

"You don't go round trying to provide either public lectures or trying to convey some sort of internal message," he told ABC television.

However, the prime minister offered the RBA a gentle reminder of his government's policies aimed at putting downward pressure on inflation and interest rates.

"They will make a judgment, as the Reserve Bank, based on a number of factors, a number of pieces of data, one of which will be the fiscal policy settings of the incoming government," Mr Rudd said.

"Our predecessors were projecting a budget surplus for 08-09 of about 1.0 (to) 1.1 per cent of GDP.

"We've said we can do a lot better than that. We're ... aiming for 1.5."

Mr Rudd said Mr Henry's role as the government's representative on the RBA board was simply to provide the bank with "the fiscal policy reality of the commonwealth".

"We don't seek to direct his course of action," Mr Rudd said.

"The responsible course of action for the secretary of the Treasury is to make sure that the bank is completely familiar of where we're going in terms of the government's budget policy data.

"They then will make an overall policy setting."

However, he made it clear he did not want to see families go to the wall because of rising interest rates.

"None of us ... want to see working families punished by interest rate decisions," Mr Rudd said.

"None of us want any mortgage rate pressure in addition to the half a million people already under mortgage pressure prior to there being a change of government."

Inflation was the ultimate enemy of working families and businesses, he said.

Mr Rudd continued to blame the Howard government for the current inflation dilemma, pointing to repeated warnings from the Reserve Bank about capacity constraints in the economy.

"None of these (warnings) were acted upon," he said.