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Interest rate drop provides welcome relief, but for how long?



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75

Peter Reith

DEPUTY LEADER of the OPPOSITION PRESS RELEASE SHADOW TREASURER

INTEREST RATE DROP PROVIDES WELCOME REUEF. BUT FOR HOW LONG?

The 1% drop in cash rates announced by the Reserve Bank of Australia today will provide some relief for people struggling under the burden of the Government's deliberately engineered recession.

Any relief must be welcomed.

But the sustainability of these lower rates remains of serious concern to the Opposition.

It was particularly significant that both Prime Minister Hawke and Treasurer Keating have refused to commit themselves to any target for inflation.

Both Mr Hawke and the Treasurer say they want to make Australia a low inflation country in the nineties, but they refuse to rule out the possibility that Inflation could rise from 4.9% in the life of their Government.

You have to ask: just how committed to low Inflation are they?

I'd also like to draw your attention to the statement by the Governor of the Reserve Bank, Mr Bernie Fraser.

In announcing the reduced cash rates today, Mr Fraser said:

‘...while there are some tentative signs that the economic downturn is beginning to bottom out, indicators generally suggested that Interest rates could be lowered further without re­ igniting demand pressures.

‘Even after allowing for today's reductions, interest rates in real terms will remain relatively high.·

Unlike the Government, the Reserve Bank Governor makes NO mention of recovery.

In fact, he says there are only ‘some tentative signs" that the recession is beginning "to bottom out*.

This is a very different picture of the economy to the one Mr Keating has been trying to paint.

Mr Keating is on the record as saying the recovery is 'coming through now·.

On 4 April 1991 in Port Pirie, Mr Keating said:

"We're seeing a recovery coming through now In housing approvals, we're seeing a turnaround in the stock cycle, you saw the national accounts for the December quarter back to positive growth.

"So I think you can see a recovery coming through."

The Reserve Bank of Australia doesnt seem to think so, Mr Keatingl

COMMONWEALTH PARLIAMENTARY LIBRARY M :CAH

16 May 1991 Canberra

Contact: David Turnbull (06) 2774277 D66/91