Financial markets are putting the chances of a February rate rise from the Reserve Bank at 40% after strong retail trade figures yesterday.

Consumers spent some $20 billion in November, increasing speculation that the Reserve will act to further dampen down the economy. Retailers estimate up to $40 billion was spent in December.

Opposition backbencher Peter Costello has emerged from his sulk long enough to attack Treasurer Wayne Swan for his handling of recent home loan rate rises in a piece in today’s Herald Sun.

“They’ve taken the opportunity of a new Treasurer who is not on top of the job to increase their margins,” Costello claims.

Swan, however, has hit back at Costello. “We’ve had 10 rate rises, official cash rate rises in a row, [and] six in the last three years,” he told the ABC this morning. “Peter Costello should be the last person lecturing people about interest rates.” 

Swan says he is confident Australia can ride out the global turmoil.

“We are well placed to ride out the turbulence that flows from the events in the United States,” he said, “but we’re not immune from it and that’s what we’re talking about now.

“That economy is going to slow. That will have a flow-on effect to Australia, just as the increase in the cost of funding from the subprime crisis is having an effect here.”

Swan has said the Rudd Government will minimise rate increases, talking up efforts to control inflation.