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Thursday, 10 March 1977

Mr LYNCH -I thank the honourable gentleman for the question. As I have said before, I rule out completely that there is any form of credit squeeze planned as part of this Government's policy. With regard to the restrictions mentioned by the honourable member I would mention the general guidelines for bank lending, the statutory reserve deposit mechanism and also the arrangements under the LGS convention. I emphasise, as I did in the statement brought down in the House recently, that the financial markets are better geared this year to handle the run down in liquidity than they have been for some considerable period. Treasury notes which will mature between now and the end of the financial year will place approximately $2 billion in private hands. The reversion of the minimum LGS ratio from 23 per cent to 18 per cent at the beginning of next month will, in effect, release more than $850m to assist Australian trading banks to meet the seasonal drain on their funds. Aside from that, I mention to the honourable gentleman that savings banks have considerable volumes of funds on deposit with the Reserve Bank of Australia and the private sector holds large deposits with the banking system. Any allegation of a credit squeeze is therefore without foundation. The Government's monetary strategy remains as it has been, that is, to allow a rate of growth in monetary aggregates which are not accommodating to inflation but which will allow the private sector adequate access to funds to underwrite recovery.

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