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Friday, 7 September 1984
Page: 663


Senator RICHARDSON —Is the Minister representing the Treasurer aware that prime interest rates have fallen again this week and that Treasury note tenders fell by one-half of one per cent? Do these continual falls in interest rates confirm that the Government's economic management, particularly in reducing the Budget deficit, is appreciated by the business community? Further, is there any indication that home mortgage interest rates will fall yet again in the near future?


Senator WALSH —I am aware of the continuing decline in interest rates over recent months. I think Senator Richardson is justified in assuming that that fall in interest rates is very substantially attributable to the fact that since this Government was elected fiscal responsibility has again become a hallmark of the Australian Government as against the gross and culpable fiscal irresponsibility of the discredited former Government, particularly in its final desperate year.


Senator Button —Interest rates and the popularity of the Opposition are both falling.


Senator WALSH —Yes, that is correct. The figures Senator Richardson mentioned were applicable to short term government debt. There are sometimes substantial variations, at least in the short term, between movement in those rates and movement in other rates. Interest rates of various types have fallen at varying rates, but in general during the last financial year, 1983-84, interest rates have fallen from around 12.5 per cent to 11.5 per cent. That, of course, follows the peak of 13.5 per cent, which was reached during the final year of the discredited former Government. The trend on financial markets is certainly for further general reduction in interest rates, and one would expect to be incorporated in that reduction of housing loan interest rates associated, as I said earlier, with the widespread and correct perception of fiscal responsibility on behalf of this Government, in contrast to the fiscal irresponsibility of its predecessor, and associated also with the dramatic fall in inflation as measured by either the consumer price index or the implicit price deflator over the last 12 months.

It is a fact that real interest rates have not fallen appreciably because the market has been a little slow to react to that dramatic fall in inflation, measured either by the implicit price deflator or the consumer price index. The fact that the fall in the inflation rate has been far more dramatic than the fall in interest rates would lead one to conclude that the market has yet to be fully convinced that the new and lower rates of inflation will be sustained. Because the wages policy is in place and is continuing to work there can be no doubt that that lower rate of inflation will be sustained, and when that is fully appreciated and spread through the market one can expect further pressures to reduce nominal and real interest rates.