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Monday, 20 May 1985
Page: 2131

Senator CHANEY —Has the Minister for Finance seen reports that the Australia and New Zealand Banking Group Ltd and the National Australia Bank Ltd have lifted their prime rate to 17 per cent, that being the rate that applies to business lines of more than $100,000? What real interest rate does that represent? Is it a real interest rate of about 12 per cent or more? Is it the highest real interest rate for 50 years in Australia?

Senator WALSH —I have not seen the particular report to which Senator Chaney refers, but I will take his word for it that there is such a report. The real rate of interest depends on what we decide the deflator is right now and that is something we will not know for some time. Arguments could be mounted about the various ways of interpreting what the deflator is; for example, whether we should multiply the quarterly rate by four, take a quarterly rate as against the quarterly rate in the previous year or take the accumulation of four quarters or a whole year figure and compare it with the previous year's figure. Notwithstanding that, the figure would probably be of the order of 5 to 6 per cent or something like that and, therefore, the real interest rates are at about that level.

I do not know whether that is a record, but in the short term at least it ought to be noted that the nominal interest rate is at least as important as the real interest rate. I do remember that the nominal interest rate just before the dying days of the Fraser Government for short term lending went above 20 per cent. For most of the last 12 months the Fraser Government, as well as having the highest level of unemployment that had been seen for 50 years, had the highest level of inflation that had applied for six years. Unemployment and inflation were both in double figures, and both rising. That was a real record. No other government in Australia's entire history has managed to achieve that record; that is, to have inflation and unemployment both in double figures and both rising and, simultaneously, nominal interest rates also at record levels. At the same time, gross domestic product had been falling by more than it had been known to fall since the Second World War.

Senator CHANEY —I wish to ask a supplementary question. In light of the Minister's strange answer, is he saying that the very high real interest rate at present is not a matter of concern to him or to the Government?

Senator WALSH —Senator Chaney is trying to put words into my mouth. What I said was that at least in the short term the nominal interest rate was probably more important than the real interest rate. Of course the Government is concerned about real interest rates and if that level of real interest rates persists the Government will of course be concerned about it.