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Prime Minister says Reserve Bank's decision not to increase interest rates is correct.



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This transcript has been prepared by a source external to the Department of the Parliamentary Library.

 

It may not have been checked against the broadcast or in any other way. Freedom from error, omissions or misunderstandings cannot be guaranteed.

 

For the purposes of quoting verbatim from a transcript, it is advisable to verify the transcript against the broadcast.

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PM

 

Wednesday 6 April 2005

Prime Minister says Reserve Bank's decision not to increase interest rates is correct

 

MARK COLVIN: The Prime Minister says the Reserve Bank has got it right by not raising interest rates. Mr Howard's praised the bank, and said that it's done a very good job over nine years and played a role in Australia's economic strength. 

 

But the Federal Opposition says the Reserve Bank's decision not to raise interest rates is a welcome but, in its view, only a temporary breather for families.  

 

Labor says the decision should not be seen as a good sign for the Federal Government, because the skills crisis and infrastructure bottlenecks remain, along with a lack of incentive in the tax system for people who work hard and move off welfare and into work.  

 

Alexandra Kirk reports from Canberra. 

 

ALEXANDRA KIRK: The Government will be heaving a sigh of relief after the Reserve Bank decided not to increase interest rates. 

 

Just before the Reserve Bank met yesterday, the Prime Minister sent a clear signal. Acknowledging the bank acts independently, he went on to say he didn't like seeing rates go up, and that while the economy was still performing strongly, growth had begun to slow and high oil prices were contributing to that.  

 

Today Mr Howard says Australia's central bank got it right.  

 

JOHN HOWARD: Well the Reserve Bank is independent. The Reserve Bank has been independent since this government came to power and the Reserve Bank has, over the nine years, done a very good job and has played a role in the economic strength we have. 

 

I believe that the decision taken by the bank today is the right decision. I don't think the indicia were there to support a further rate rise, and I therefore have no hesitation in saying I think the bank made the right decision. 

 

ALEXANDRA KIRK: The head of the Council of Trade Unions, Greg Combet, says he's glad the Reserve Bank didn't raise rates, but accuses John Howard of trying to exert blatant political pressure on the RBA in the lead up to its decision. 

 

GREG COMBET: I mean this is a government that has touted that it likes to treat institutions independently, but it's putting plenty of public pressure on the Reserve Bank, just as it's interfering in the independence of the Industrial Relations Commission.  

 

I mean this is a government that plays politics that way. 

 

ALEXANDRA KIRK: While Labor blames the Government's big spending and inaction on key bottlenecks for putting upward pressure on rates, it too hoped publicly that rates would not rise.  

 

But like the Prime Minister, the Labor leader Kim Beazley doesn't think the RBA was influenced by Mr Howard's earlier comments. 

 

KIM BEAZLEY: No, but I think that the Reserve Bank is watching the Government. It's pointed out to the Government the economy's slowing. It's pointed out where they think the bottlenecks are, in infrastructure and skills. The Government would be very foolish if they didn't take notice of what the Reserve Bank was saying to them. 

 

ALEXANDRA KIRK: According to Kim Beazley, the Reserve Bank didn't choose to raise rates again because they're already high in world terms - the second highest in industrialised world. 

 

KIM BEAZLEY: They're twice that of the Americans, they're nearly three times that of the Japanese. Britain is regarded as having rates that are too high and the British rates are lower than ours. 

 

The Reserve Bank knows all these things, knows the pressure that families are under with increased costs, for example, in the health care system, and knows all about what's happening with fuel prices. 

 

So the Reserve Bank understands all that, but it's given a warning to the Government. It's told them skills and infrastructure, that's what it's got to be about - the next phase of productivity. 

 

ALEXANDRA KIRK: Labor argues the Government spent up big in the lead up to the election on consumption, not investment, which they maintain Australia sorely needs.  

 

Shadow Treasurer Wayne Swan says the Government's not off the hook yet because it still hasn't heeded the RBA's advice to do something about the capacity constraints in the economy. Only then, he says, will families not have to worry about rising interest rates.  

 

WAYNE SWAN: There's no doubt that the pressure on inflation, which is putting upward pressure on interest rates, continues to exist, and this has been identified by the Reserve Bank.  

 

They've decided on this occasion not to take that decision to raise rates. That's certainly welcome, and I hope in the future they don't raise rates either.  

 

But if the Federal Government doesn't roll up its sleeves and do the really hard work of reform by putting some incentive in the tax system, solving the skills crisis in the Australian workforce and infrastructure bottlenecks, then upward pressure will remain, and that will be a constraint on growth, and it will continue to put upward pressure on rates. 

 

MARK COLVIN: Shadow Treasurer Wayne Swan ending Alexandra Kirk's report.