Reserve fuels rate rise fears

BUSINESS and mortgage holders face further interest rate rises, with the Reserve Bank harbouring doubts that it has done enough to douse inflationary expectations and cap wage and price rises.

BUSINESS and mortgage holders face further interest rate rises, with the Reserve Bank harbouring doubts that it has done enough to douse inflationary expectations and cap wage and price rises.

The Reserve Bank yesterday revealed the depth of its concern that inflation may be getting away from it, with the newly released minutes from its board meeting early this month tipping a "prolonged period of economic difficulty" if inflation were not brought down.

The bank said it was still a question of whether interest rates were high enough to reduce inflation, The Australian reports

The minutes revealed that board members "spent considerable time" discussing whether another rate rise was necessary before opting to keep rates steady at the 12-year high of 7.25per cent.

However, the minutes warn that Australia's inflation was higher and rising more rapidly than in other major developed countries and was likely toremain above 4 per cent for most of this year.

"This carried the risk that expectations of high ongoing inflation could develop, which could in turn affect priceand wage-setting behaviour," the bank said.

The release of the minutes came as Treasury secretary Ken Henry, a Reserve Bank board member, urged caution in the spending of the $41 billion worth of infrastructure, health and education funds unveiled in the budget amid concern they could increase inflation.

But as Wayne Swan yesterday stepped up his sales pitch on the Budget, which is designed to lower inflationary pressures but has left voters unconvinced, Dr Henry said the federal budget had a role in fighting inflation.

Read the full report in The Australian.