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R E L E A S E

EMBARGO .

STATEMENT BY MR. JOHN HOWARD M.P., TREASURER, ON INTEREST RATES

The remarks yesterday by Mr W. G. Hayden on interest rates are

completely unfounded.

Mr Hayden has sought to 'muddy the waters' on the question of

interest rates in an effort to detract from what is, and what

'will continue to be, one of the Government's major successes

on the economic front. ·

Yields on Government Securities have fallen by over H per cent

since the budget- ■ , Some rates, in the private sector had fallen before these reductions and have continued to do so.

The recent reductions in Government Interest Rates represent

the first time in over four years that the whole structure of . Government Security yields, both short and long, has been reduced.

It is also the first time that the long bond rate has been below

10 per cent in over two years. The overdraft rate on loans up

to $100,000 presently stands at 10.5 per cent, 1 per cent less

than when the Government took office.

These results are directly due to the Government's careful

management, of both . fiscal. . . and monetary. policy. .. ........ . . .

It is a central objective of the Government's economic strategy

to achieve the necessary pre condition for bringing down further the whole structure of interest rates on Government Securities.

The Government is well on the way to establishing the essential

pre condition namely lower inflation, as evidenced by three

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consecutive quarters with the increase in the Consumer' Brice

Index at less than 2% per cent and the prospect of an inflation

rate of 6^"8 per cent in 1978.

This will pave the way for reductions in Bank

and Building Society rates as well as lower yields on official

securities. ■ . . ' .

i ■ ’ ■

The Government's record on interest rates is in sharp contrast with the record of the previous Labor Government. That Govern-

C O ment was responsible for an unprecedented increase in interest rates and it's inflationary policies of monetary laxity have

meant that rates have had to stay high for some time.

Just look at their record.

In December 1972 the long term Government Bond Rate was 6 per

. cent; when the Labor Government left office in December 1975 .

it was 10 per cent. ... . · . ■ . .... . . . · \ ’ · ■ '

In December 1972 the interest rate charged on bank overdrafts

was 7.75 per cent; when Labor left office it was 11.5 per cent.

This record speaks for itself.

While it remains an objective of the Government to see further

reductions in the level of interest rates, this will only occur

when, and to the extent that, it can be achieved on a sound and

sustainable basis.

Recent movements in rates have been consistent with earlier market

trends and future movements in rates will be consistent with .

market realities.

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Mr Hayden would have us believe that the Government will have

• to take special measures in order to get interest rates down

any further. It should be clear that thin not the caee.

The interest rate reductions in prospect will follow as a natural ,

result of the Government's economic management.

Mr Hayden's suggestion that the Government has to set a deficit

target of $3,000 million>is . nonsense and reveals -a.;

lack of understanding of the processes of economic policy. An

enlarged Government deficit, like that which would result from ,

^ the Opposition's proposed spending spree, would require higher . rather than lower interest rates if its inflationary effects were

to be minimized.

for its part this Government remains committed to its anti-L.

inflationary strategy and through this to lower interest rates.

CANBERRA

. 29 November 1977

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