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Rate rise is a big decision with big implications for industry

12 November, 2007

"The decision by the Reserve Bank to lift official interest rates is a big decision, which has big implications for large sections of Australian industry and for domestic policy settings," Australian Industry Group Chief Executive Heather Ridout said.

"While we respect the decision of the RBA, the rate hike will have a trifecta of negative impacts on industry.  It will increase business costs, put further upward pressure on the dollar and stifle domestic demand potentially choking off any recovery in the housing market.

"This rise comes at a time when many businesses, particularly in manufacturing and tourism, are already facing weak demand in key markets and reeling from the impact on their competitiveness and profitability from the currency shock.

"The prospect of even further rate rises is of great concern and the RBA's decision contains two sobering messages for domestic policy settings, which are especially pertinent in the election context.  It underlines the importance of running a disciplined fiscal policy that does not add unduly to near term inflationary pressures and it points to the importance of medium and longer term measures that improve both productivity and the capacity of the economy.

"Getting these settings wrong would put more upward pressure on interest rates and could lead to more rate rises than might otherwise occur," Ridout said.

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