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RBA says economy cooling, but no promises on -

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RBA says economy cooling, but no promises on interest rates

Broadcast: 05/04/2008

Reporter: Brendan Trembath

Reserve Bank Governor Glenn Stevens, says Australia's economy is cooling but he is making no
promises of lower interest rates.

Transcript

VIRGINIA TRIOLI, PRESENTER: The Reserve Bank Governor says Australia's economy is cooling, but he's
making no promises of lower interest rates.

At a Parliamentary committee on the economy's performance, the Governor defended the big banks'
right to make a profit, and to pass on the increased costs of borrowing.

Brendan Trembath reports.

BRENDAN TREMBATH, REPORTER: Twice a year the man in charge of Australia's interest rates has to
explain himself to a panel of politicians.

Glenn Stevens won't say how long rates will stay high. But, he's not about to ignore the threat of
inflation.

GLENN STEVENS, RESERVE BANK GOVERNOR: I think it's quite clear from any study of history, either
ours or any other country that if you don't control inflation, then ultimately you end up with
higher interest rates.

BRENDAN TREMBATH: The central bank sees inflation rising to four per cent.

That's uncomfortably high for Glenn Stevens.

The Treasurer, Wayne Swan, is uneasy about it too.

WAYNE SWAN, TREASURER: The inflation genie is out of the bottle. It's been on the march for a
couple of years.

BRENDAN TREMBATH: The Federal Opposition took this to mean inflation is out of control. But that's
not how Glenn Stevens sees it.

GLENN STEVENS: One can't say that there isn't a problem. There is a problem. But I myself don't
think it's out of control.

BRENDAN TREMBATH: The Reserve Bank Governor seems optimistic though that high interest rates will
have the desired effect.

GLENN STEVENS: What we've said is inflation has risen, that's a problem. It's got to be dealt with.
We are dealing with it. And we will

contain it and it'll come down.

BRENDAN TREMBATH: The Reserve Bank sees the first signs that consumers are borrowing less as
they're squeezed by higher interest rates.

Just how many are in really deep water is debatable.

The Governor argues mortgage stress is a term used too loosely.

The Reserve Bank has been raising interest rates to try to tame inflation. The bank's official cash
rate has jumped four times since August.

Economists generally agree rates are on hold for now, and that the Reserve Bank will wait and see
how effective it's been in attempting to cool the economy.

STEPHEN WALTERS, JP MORGAN: I think it's very unlikely that interest rates go down in the very near
term.

BRENDAN TREMBATH: Australia's biggest banks have been passing on higher borrowing costs, often
without any prompting from the Reserve Bank.

But Glenn Stevens and his colleagues take it into account.

GLENN STEVENS: We've been calibrating for that all the way through in what we do.

BRENDAN TREMBATH: In its recent review of Australia's financial stability, the Reserve Bank
described the nation's biggest banks as strong and profitable.

While critics have said they should sacrifice some of their profits to spare borrowers higher
interest rates, this banker does is not convinced.

GLENN STEVENS: What's happening is that their cost of funds are increasing by more than the cash
rate rise. Now, that's a fact.

BRENDAN TREMBATH: It's perhaps a better choice of words than he used when he grappled with the same
issue last month.

He said, "That's just life."

Once the politicians had had their turn, Glenn Stevens wasn't done with the curly questions.

This student mentioned the "R" word that makes the world tremble.

STUDENT: And, when should Australia face the possibility of a recession

GLENN STEVENS: Recession, ah, I don't think we're going to have one anytime soon. Probably that's
enough said on that matter.

(laughs).

BRENDAN TREMBATH: Thank you Mr Stevens, see you again in six months.

Brendan Trembath, Lateline.