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Tuesday, 20 September 1994
Page: 961

Senator HILL —My question is directed to Senator Evans, the Leader of the Government in the Senate. I ask: are Australian families facing another increase in mortgage interest rates before Christmas as reported in today's press? Would the forecast one per cent rise in mortgage interest rates add another $76 to the monthly mortgage payment on an average loan? How does the government expect families, particularly those in the bush, to cope with another rise in mortgage interest rates while many of them are still looking for jobs and security in their existing employment?

Senator GARETH EVANS —I have not seen any press speculation of the kind to which Senator Hill is referring, and I cannot imagine that there would be any likely substance to it, given the fact—

Senator Tierney —Like the last time!

Senator GARETH EVANS —The honourable senator talks about last time. It is the case that Westpac raised its variable home loan rates by 0.75 per cent. Yes; indeed it did. ANZ followed suit, but it took it, I think, nearly two weeks to do that.

Senator Short —You said they wouldn't.

Senator GARETH EVANS —All I said was that it was not anticipated in the foreseeable future. Moreover, the important point to make is that competition in the banking industry still does apply. We have the situation where NAB announced, as recently as 14 September, that it would not be increasing its variable home rates for a period of time, and the Commonwealth has similarly announced that it did not yet see all the factors justifying an increase. So there is that competitive environment around the place which is serving to curb what might otherwise be the instincts of some of the banks to improve their financial position at the expense of home loan borrowers.

  The general situation is that the interest rate environment has been addressed by the Reserve Bank moving proactively, as it did some weeks ago, to increase official interest rates by three-quarters of a per cent to head off inflationary pressures before they emerged. A number of other countries have acted in a similar manner, and the markets and most commentators are indicating considerable satisfaction with the appropriateness of current settings. So, Mr President, we are seeing once again the opposition utilising or advancing its well-known track record of seeking to create interest rate speculation for thoroughly base motives, and it should as usual be ignored.

Senator HILL —Mr President, I ask a supplementary question. I remind the minister that on the last occasion he said that there was no need for official interest rates to rise and then, once they had in fact been lifted, he said that it was a necessary part of the recovery. Now we see people such as Don Argus, the Managing Director of the National Bank, saying last weekend that his bank expects, in its economic forecast, another hike in official interest rates before Christmas. That is, as is the usual practice, contrary to what the minister said—and I remind him again—when he claimed that there was absolutely no reason to believe any increase would flow through to housing mortgage interest rates. Does this not all mean that, as the recovery further continues, interest rates will go up and that in fact that is government policy; and that, as official interest rates go up, mortgage rates will go up? Is that not why the press today is speculating that Australian home buyers will suffer more as a result of this government's policy?

Senator GARETH EVANS —There is not a great deal I can add. Of course, it is the case that interest rates will continue to be adjusted as appropriate and necessary to reduce the risk of the economy overheating, and overheating 12 to 18 months out—that is the cycle we are trying to anticipate—and to avoid a situation where it is too little too late, which has been the case in the past. It is our expectation, though, as I have said before and as the Treasurer said before, that on this approach interest rates will not need to rise to anything like the same extent that they have in past cycles.

  It is not impossible that there will be some further rises. Of course, it is perfectly possible that there will be some further adjustments, but it is reasonable to expect that they will be small and nothing like what we have seen in the past. Equally, whether or not there is a flow on for any given official cash rate rise into the housing market will depend on a number of factors. Automaticity should not be assumed, any more than proved to be the case last time around, with two banks still holding out from any rise at all. It will depend very much on the overall banking environment, with the competitiveness in that industry being a crucial factor.