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The Reserve Bank has indicated that it does not want a sharp rise in interest rates

PAUL MURPHY: Now, to interest rates. And in an unexpected development, the Government's Reserve Bank has signalled that it doesn't want them sharply higher. The news was flashed across dealers' screens just before lunch time today as our economics correspondent, Peter Martin, reports.

PETER MARTIN: The news took the form of an interest rate protest. That's a sort of intervention available to the bank if it's unhappy with the direction or speed at which the rates are moving. A couple of years ago, protests were rare indeed - and even now, they are quite unusual.

The day began with unofficial, professional rates at around 15 per cent. That's where the Reserve had left them yesterday during its day-long board meeting. But because there was no word from that meeting by this morning, the dealers started guessing. Had the Reserve decided to push the rate sharply higher? If it had, perhaps the dealers had better get in first and, in any event, rates were certain to rise to some extent during the tax run-down period - at least, that's what the dealers thought. So, they bid the rates up, and in the matter of hours they'd pushed them from 15 per cent towards a scary 16. At 15.8, the Reserve decided it had enough. Todd Ritchie, at Schroeders Australia, was watching what happened.

TODD RITCHIE: We saw them make a rate protest.

PETER MARTIN: A rate protest?

TODD RITCHIE: Well, that's an American terminology used when the Fed comes into the market over there. When it's not happy with the direction of interest rates, it comes in and it makes a rate protest and pushes the Fed funds rate down a little bit.

PETER MARTIN: Is that like a yachting protest?

TODD RITCHIE: Well, in a market sense, it happens via the Reserve Bank buying more securities, and they came out at 11.30 today buying extra securities, thereby putting more funds into the market.

PETER MARTIN: Did they sent a message round to dealers?

TODD RITCHIE: The message flashed on Reuter screens around the market.

PETER MARTIN: What did they say?

TODD RITCHIE: The Reserve Bank would be offering to buy CGS.

PETER MARTIN: That would be a code for: the Reserve Bank is unhappy with the level at which we saw interest rates rise this morning?

TODD RITCHIE: I think it's fair enough to make that conclusion.

PETER MARTIN: What can we say as a result about the Reserve Bank's policy in the wake of its board meeting?

TODD RITCHIE: I think it's fair enough to say that they don't want unofficial cash rates at 15-3/4 per cent. They probably want them closer to 15-1/4 to 15-1/2.

PETER MARTIN: So the Reserve Bank has not opted for a short, sharp shock?

TODD RITCHIE: No. They've opted for, I think, some snugging of interest rates up again.

PETER MARTIN: And the implication of snugging - that's gentle tightening instead of a short, sharp shock - is that Australian mortgage holders are probably now spared the prospect of a 17 per cent home loan interest rate. But before you break out the champagne, the people who know about these things tell me that a rate of 16 per cent, or at the very least, 15.5, is still as good as certain.

PETER MURPHY: Our economics correspondent, Peter Martin.