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Interest rates

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Leader of the Opposition

6 May 1992 REF: TRANSCR\sr\6592



SUBJECTS: Interest rates


Dr Hewson what is your reaction to the full 1% cut in rates?

Well, first we're always pleased to see interest rates come down. Secondly though, we want to make sure that they'll stay down and that the gains against inflation will be sustained.

We're worried that the Government hasn't committed to maintain price stability and until they do you've got to have a question mark over whether they can keep inflation down.

Thirdly there's been a bit of pressure in the last couple of days apparently between the bank and the Government. Stories running around yesterday that the cut would only be a half a percent recommended by the Reserve Bank. I noticed today in their announcement they say that after their Board meeting yesterday and importantly consultations with the Treasurer

they've decided on 1 per cent. So, there may be a bit of political pressure there as well.

Do you agree with the Treasurer that the rate cut should be passed on to existing home borrowers and credit card rates as well as to business.

Well, we'd like to see that. But I've always left that decision to the banks and the banks are trying to recover some capital base for their operations after the excesses and loan losses of the last half of the 1980s.




Parliament House, Canberra, A.C.T. 2600 Phone 77 4022



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So they have been, it is true, slow to pass those on. But I think the Government's obviously worrying about the political impact of this. Cut in official cash rates doesn't mean much to the average Australian unless it is reflected in housing

interest rates and in bankcard rates and in business rates and the business rates are still very high and in real terms our interest rates are still disturbingly high by world standards and that's what will stop a recovery because investment will not pick up as long as real interest rates stay anywhere near where they are.


You're concerned that the bank may have only wanted 1/2 a per cent. Why do you believe that the government may have pressured for the full 1 per cent?


Well, there is always, you could say I feel an election coming o n .

There is always the possibility, I think, of an early election with Paul Keating. His strategy has been not to actually take substantive policy initiatives but to make a lot of noise to manhandle the Queen, attack the Monarchy. Attack the flag,

bring down One Nation and then forget it. A whole host of other issues and things that are designed to bring a lot of colour and a lot of noise and improve his standing in the polls but I think he's own back benchers are getting

increasingly worried that this is a dangerous tactic, it won't wash with the electorate if unemployment continues to rise.

All this other diversionary tactic will not work and that they'll pay a very large electoral price and I think there is mounting pressure on Paul Keating to go to an early election.


Do you think a full 1 per cent is responsible?


Well, we leave those judgements, quite frankly to the authorities because they have a better idea than we do outside what's happening to the economy.

We all feel, of course, that interest rates should fall further and faster but we've learnt in Australia that if you just push them down and you don't put the right policies in place, it's not long before they go back up again and with a balance of payments number earlier this week of $1 billion in a month, in the midst of the worst recession in 60 years there

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is genuine concern about the fact that we still have very deep seated structural problems which haven't been dealt with.

Also the pick up in housing activity which is referred to by the Reserve Bank explicitly in its release. Well it's showing that maybe some parts of the economy are picking up and they seem to be expressing a view that maybe picking up too fast and of course, if we have a quick recovery with our balance of payments the way it is, our imports will jump, we'll have a balance of payments crisis, now that's been our history because what that means is that interest rates don't stay down very long, they go back up again and I think that is the concern you're seeing in the way the Reserve Bank has written

it's statement today.

Flynn: ยท

Thank you.