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The Reserve Bank will continue to intervene to prevent a large and sudden increase in interest rates

PETER THOMPSON: The ACTU push for a $50 wage rise and tax cut is likely to put further upward pressure on money market interest rates. But our economics correspondent, Peter Martin, says the Government's Reserve Bank won't, itself, be intervening to push rates higher.

PETER MARTIN: Staff at the Reserve Bank want higher interest rates. The word is they'd love to push them higher, but they've been vetoed by the Treasurer. The compromise, reached in discussions over the last two days, is for bank bill rates around 16 per cent and cash rates no higher than 15.5. That's why, in a totally unexpected move, mid-yesterday, the Reserve intervened in the market to push cash rates back down, after they'd shot up past 15.5 towards 16 per cent. With the Reserve Bank's targets now known, the retail banks are now most unlikely to push home loan mortgage rates up to 17 per cent if, indeed, they ever were. Sixteen per cent is likely, although not necessarily straight away. The big lenders for housing, such as Westpac and the Commonwealth, don't want to lose their market share. They'll try to hang on.

Meanwhile, last night's decision for a wage rise of $30 a week from the ACTU is being taken as bad news in the money market dealing rooms. The traders have heard rumours for most of the week that the wages demand might be more than the $15 to $20 they were expecting, but last night's decision helped them quantify it. Some of them will try to push interest rates up today and if enough of them do it, over time, the Reserve Bank mightn't be able to hold its new line. Traders are also concerned about the employment figures due out later this morning. Forecaster, Ray Bloch, says unemployment is likely to fall yet again from its present 6.9 per cent to 6.7, with a seasonally adjusted extra 10,000 Australians in jobs in the month of January. While to you and me that might seem like good news, to the traders it means an extra 10,000 Australians in the shops, spending, pushing up prices and sucking in more imports. Ray Bloch.

RAY BLOCH: The effect of that, in terms of financial markets, is to constantly reiterate in the minds of financial market participants that interest rates will have to go further in order that this should be spiked.

PETER MARTIN: Is that a reasonable feeling on the part of the people in the financial markets?

RAY BLOCH: High growth in the case of Australia, where imports are still running at very high levels and where inflation, as we can see, is now reaching quite dangerous levels, has to be seen now to be turning down for greater financial market confidence to allow the situation in which interest rates could fall.

PETER THOMPSON: Ray Bloch of the investment bank, Dominguez Barry Samuel Montagu Ltd.