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Monday, 29 August 1994
Page: 478


Senator GARETH EVANS (Minister for Foreign Affairs) (3.11 p.m.) —It is not necessary for me to repeat at any great length what I said in question time, but I make the basic point again that, according to the 1994-95 budget, the current account deficit is forecast to increase moderately in 1994-95, both in absolute terms and as a proportion of GDP, this increase reflecting in essence the impact of strengthening domestic activity, particularly business investment, on import growth. The forecast rise is from around 3 3/4 per cent of GDP in 1993-94 to around four per cent of GDP in 1994-95. The current account deficit has remained steady at around 3 3/4 per cent of GDP in 1993-94. It is expected to rise only fractionally in the coming year. The change we have seen in this month's figure, if it is sustained, is consistent with that. I make the point again, as I have so often in the past, that we simply cannot read any particular significance into these month by month figures, which do jump around, particularly when we are talking about clutching a single figure, as Senator Hill did on merchandise exports. There is no basis on which to make any adverse judgment about that.

  So far as interest rates are concerned, they are still, of course, relatively low, with official cash rates only three-quarters of a percentage point, as I have often said before in this place, above its lowest level for 20 years. Official interest rates will continue to be adjusted as appropriate to reduce the risk of the economy overheating 12 to 18 months out. We want to make sure that we do not get the situation that we have had in the past where interest rate rises have been either too late or too little. We have judged the possibility of there being inflationary pressure in terms of supply and demand factors 12 to 18 months out, and that particular interest rate adjustment was judged accordingly.

  The approach we have adopted should mean that interest rates will not need to rise to anything like the same extent as they have in past cycles. There is always a cyclical character associated with interest rate rises. We have to anticipate some increase over time as the business cycle gathers pace, as it is at the moment. We have taken the appropriate steps at the appropriate time with the appropriate order of magnitude and none of the present figures that have come out, least of all the balance of payments figures, suggest that there is any basis for reconsidering that analysis.