THE Reserve Bank has presented a much more confident view of the economic recovery than the Federal Government to justify its latest interest rate rise, increasing political pressure to wind back its stimulus package. 
 

The Australian reports that further rate rises are likely, possibly as soon as next month, with Glenn Stevens saying the 25-basis-point increases yesterday and at last month's meeting were helping to make economic growth more sustainable.

"With the risk of serious economic contraction in Australia now having passed, the board's view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared much weaker," the Reserve Bank governor said.

Wayne Swan fended off opposition claims the government was responsible for the rate rise through its stimulus spending, presenting the RBA decision as the inevitable result of economic recovery.

"Today's decision is a tough one for many Australian families and businesses," the Treasurer told reporters in Brisbane, "but rates could not stay at 50-year emergency lows forever. Because the economy is recovering, we will see changes in rates from time to time."

However, Malcolm Turnbull, buoyed by the latest Newspoll showing a big recovery in the Coalition's support, rounded on the government, saying it was its refusal to change its spending or borrowing in the light of improved economic conditions that was forcing the Reserve's hand. "They went into this big fiscal stimulus, this big spendathon on the basis that Australia was on the edge of an economic abyss. And now we see our economic conditions are stronger," the Opposition Leader said.

With two increases in the past two months, the official interest rate is up to 3.5 per cent, which will push standard mortgage rates up to about 6.25 to 6.3 per cent, assuming banks raise rates by no more than the Reserve Bank's increase.

This would add $91.70 a month to the repayments of someone on a $300,000 mortgage, compared with their position when rates were at record lows.

The RBA will publish its latest economic forecasts on Friday. They are likely to show economic growth in 2011-12 is stronger than the 2.75 per cent forecast by Treasury in its budget update released on Monday, and may also put inflation higher than Treasury's estimate of 2.25 per cent.

Read more on The Australian online.