Economy lags due to rate rise 9-58 5th March 2008

Yesterday’s rate rise, up 0.25 percent to 7.25 percent, is the seventh rise in two years. But official figures to be released today should show that economic growth slowed for the December quarter, expanding by just 0.8 percent compared with the previous three quarters at 4.3 percent.

Higher interest is starting to affect consumer spending, says ANZ’s chief economist Saul Eslake. "Of course we'll feel much more of an effect from those developments in the first half, and maybe the second half of 2008. The Reserve Bank obviously felt that some further tightening of monetary policy was required to ensure that domestic demand does slow by enough to push inflation back to within the two to three percent target band."
 
Global movements, such as the US subprime mortgage crisis, have also influenced consumer confidence.
 
The Reserve Bank indicated a possible April rate rise.