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Wednesday, 26 November 1986
Page: 2773


Senator BLACK —My question is addressed to the Minister for Finance as Minister representing the Treasurer and the Minister representing the Minister for Primary Industry. Has the Minister's attention been drawn to news reports of a speech by the President of the National Farmers Federation, Ian McLachlan, to the NFF's half-yearly conference in which he called for government action to bring down interest rates? What would be the implications of dramatic action by the Federal Government to cut interest rates by 5 per cent in two months, as proposed by the President of the NFF?


Senator WALSH —I have seen some reports of Mr McLachlan's speech. It is not entirely clear to me what he is advocating but it would appear that he is advocating action by the Reserve Bank of Australia which would bring interest rates down. One way in which that could be done would be for the Reserve Bank to buy, on a large scale, government bonds, thereby pushing up the market price of the bond and pushing down the yield on the bond. It could be expected that that sort of action would flow through to lower interest rates. That conceptually is a policy of printing money. I guess if one prints enough money, money becomes a free good and the rate of interest on that free good would fall to something like zero, as would the value of the currency if pushed far enough. That seems to be essentially what Mr McLachlan is advocating.

If a substantial move in that direction were to be initiated by the Reserve Bank, it is most inevitable-I think one could probably say `inevitable', to be more absolute-that the value of the Australian dollar would tumble; it may even collapse. That would have a number of consequences. For a start, it would absolutely finish off those farmers who were persuaded, or who decided, to borrow money denominated in foreign currencies. There are quite a few of them already in trouble for that reason.

Another major fall in the value of the Australian dollar would vastly increase, in Australian dollar terms, their liabilities and push them into insolvency. The number of farmers who have done that is not known to me but it appears to have been quite significant. Mr McLachlan's policies would finish them off pronto. The Government and, to the best of my knowledge, the Reserve Bank are pursuing a policy which will bring interest rates down over time in a way which is sustainable without incurring the pernicious side effects which the policy being advocated by Mr McLachlan would produce.