Senator CHILDS —Has the Minister representing the Treasurer seen remarks attributed to Mr Peacock, the shadow Treasurer, to the effect that the rate of growth of the Australian money supply has accelerated since August last year? Can the Minister inform the Senate as to whether the Government has loosened its stance on monetary policy since last August?

Senator WALSH —I did see Robert Hadler's article in Saturday's Weekend Australian. The relevant section states:

The Deputy Leader and economic spokesman of the Opposition, Mr Andrew Peacock, said yesterday that the recent growth in the money supply meant the prospects for a further fall in inflation were poor.

Mr Peacock said the rate of growth of the key monetary aggregates had accelerated since August last year.

He appears to be basing his comments on statistics for M3, a definition of money supply which consists mainly of deposits with commercial banks. He seems to be unaware of the effect of the reduction of the statutory reserve deposit (SRD) ratio requirement last September and the effect that this had on banks. The old SRD gave forms of financing such as 90-day bills an artificial advantage vis-a-vis financial transactions appearing as deposits and advances on the balance sheets of commercial banks, and the substantial removal of that artificial advantage caused a process that economists call re-intermediation to occur. That does not mean an increase in the volume of credit; it simply means a change in the composition of that credit, with more of it going through bank deposits and bank advances and less through other arrangements and therefore artificially boosting the published M3 figure.

Mr Peacock, unfortunately, seems not to have had tutorials from Dr Hewson and Senator Stone on that part of his elementary economics course. It demonstrates yet again that he should rapidly try to catch up. Everyone knows that the Government has tightened its stance on monetary policy over the period during which Mr Peacock claims it has been loosened-and, indeed, for some six months or so before the period to which Mr Peacock referred. If he wants to see some statistics on that, I suggest he look at what has happened to the yield curve which has become steeply inverse or at the recent figures for the rate of growth of the money base which grew by 8.6 per cent between February 1988 and February 1989; in other words, by a good deal less than the nominal GDP growth over the same period.