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Reserve set to lower rates -

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Reserve set to lower rates

The World Today - Tuesday, 2 September , 2008 12:10:00

Reporter: Lyndal Curtis

ELEANOR HALL: After seven years, the reserve bank is expected to lower official interest rates
today. But while both major political parties are welcoming the prospect, it's ignited debate about
just who's responsible for the economic circumstances which have led to the likely rates move.

On the one hand, lower rates should keep homeowners happy, assuming the banks pass them on, but on
the other, it reflects an unwelcome economic slowdown. And to add poignancy to the moment, the news
from the Reserve Bank board will for the first time be announced during federal parliament's
question time.

As Chief Political Correspondent, Lyndal Curtis reports.

LYNDAL CURTIS: Politicians of all stripes are expecting rates to be cut.

DAVID BRADBURY: Well clearly today is a very significant day for homeowner's right across the
country.

SCOTT MORRISON: In my electorate there are many families and there are many individuals who have
mortgages and they would like to see rates come down.

LYNDAL CURTIS: Greens leader, Bob Brown, has suggested the bank could do even more.

BOB BROWN: I think the RBA should lower interest rates, lower unemployment, lower house prices,
bring down grocery prices, lower the price of entry to swimming pools and generally give us a free
night at the pictures on Tuesdays.

LYNDAL CURTIS: Sydney Labor backbencher Jason Clare is particularly aware of what trouble high
interest rates have caused.

JASON CLARE: Well it's a big day for the people of my electorate in South West Sydney today, as
I've said many times, it's the mortgage stress capital of Australia and more people lose their
homes in my electorate in South West Sydney than anywhere else in the country.

LYNDAL CURTIS: The Treasurer Wayne Swan and Shadow Treasurer Malcolm Turnbull have welcomed the
prospect of a rates cut, but their opinions diverge when placing blame for slowing economy.

Malcolm Turnbull blames Wayne Swan.

MALCOLM TURNBULL: So what Wayne Swan did was he stoked inflationary expectation and he egged the
Reserve Bank on to put up rates.

LYNDAL CURTIS: But speaking on sky TV, Wayne Swan is going further back, blaming the Coalition
government.

WAYNE SWAN: Economic growth has been slowed by ten interest rate rises that are owed under the
liberal party and then on top of that you've got the impacts of the global credit crunch.

LYNDAL CURTIS: Liberal frontbencher Eric Abetz blames successive rate rises by the Reserve Bank

ERIC ABETZ: And I have a funny hunch that some of the interest rate rises towards the end of last
year until the beginning of this year are now regretted in the minds of some of the people on the
Reserve Bank.

LYNDAL CURTIS: While chief economist for BT Financial Group, Chris Caton does believe the Reserve
Bank went too far in raising rates, he says both sides of politics are wrong in their assessments
of the cause of the slowdown because it's largely been the result of global factors.

CHRIS CATON: Well that's actually usually the case I think the federal government has left power
over the Australian economy then they would like us to believe, But I think we're also suffering to
some extend from a hangover from you know too many years of essentially, well a growth rate that we
simply couldn't sustain.

LYNDAL CURTIS: The difficulty with assessing the economy is that every silver lining has a cloud
and every cloud, a silver lining. As the Reserve Bank board has pointed out in successive minutes
there are conflicting signals. Business and consumer confidence is down, as is retail spending and
the jobs market.

But commodity prices are up as are company profits. Chris Caton says it will be a finely nuanced
decision for the Reserve Bank.

CHRIS CATON: Although you know financial markets have four rate cuts priced in and although
financial markets really overestimated the state of the cycle and I think the cuts will become
dependent on what we find out new about the economy. But my suspicion is that the Reserve Bank's
read this right that the Australian economy has slowed, perhaps a little more than they intended to
slow it.

LYNDAL CURTIS: He says the country is in for a period of relatively slow economic growth. And Wayne
Swan says there are still some troubled times ahead.

WAYNE SWAN: Well certainly I don't think we can say we're out of the woods yet, but it's certainly
a good sign that the Reserve Bank is deciding to loosen monetary policy should they take that
decision today. But of course as you know we have an inflation challenge in this country. It's a
challenge that took a long time to develop and it will take some time to deal with.

LYNDAL CURTIS: When the Treasurer is handed a piece of paper in question time today outlining the
reserve's decision, it's expected to show a cut of one quarter of one per cent.

That's less than the Opposition leader Brendan Nelson called for yesterday. He was still under
attack from the Treasurer for his suggested rates could be cut by half of one per cent, but his
colleagues were coming to his defence.

WAYNE SWAN: I mean the Liberals are all over the shop here, I mean Brendan Nelson, Malcolm
Turnbull, Peter Costello presided over 10 rate rises in a row, sat round the cabinet table that
went on a reckless spending spree and now want to come out and lecture others about what should be
happening.

MALCOLM TURNBULL: Brendan Nelson was putting down a marker, he was standing up for homebuyers, he
was standing up for Australians who are battling to pay their mortgages.

GEORGE BRANDIS: I'm congratulating Doctor Nelson for being the only political leader in this
country who's come out and called for a half a per cent rate cut while Mr Swan is the only
treasurer in the world who is talking down his own nation's economy.

LYNDAL CURTIS: Chris Caton is predicting the cut won't be as big as Dr Nelson wants.

CHRIS CATON: I think a quarter of a point now and another quarter in short order even in October or
November so I guess you could call a quarter of a point today, a half Nelson.

ELEANOR HALL: And that's Lyndal Curtis reporting from Canberra.