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Syntec argues that interest rates should be lowered and that a lower inflation rate can be maintained

RICHARD PALFREYMAN: The push for lower interest rates gets a further boost today with the release of unemployment figures considered likely to show the jobless rate at above 10 per cent. That news will come on top of an influential report hitting the desks of business leaders this morning, tipping an extra cut in interest rates of 1.5 per cent by the end of next year. Here's our economics correspondent, Peter Martin.

PETER MARTIN: Sixteen hundred Australian business leaders read the Syntec report each month. This morning over their Cornflakes, they're discovering that long-term interest rates should drop from their present level around 10 or so per cent, to below nine - a very low 8.5 is Syntec's best guess, with short-term rates approaching 20 per cent only two years ago, expected to drop to 8 per cent. The reasons: interest rates in the US and Japan are tumbling, each feeding off the other. Our current account deficit has almost disappeared as an urgent problem; it's on its way down to $13 billion from somewhere around $20 billion. And according to Syntec, a low inflation rate of just two or so per cent is looking sustainable with lower interest rates. The man bold enough to say so is Syntec's executive chairman, David Love.

DAVID LOVE: Up till now, we - and I would think just about everybody else - has been saying `Look, the inflation fall we're getting is based on crushing pressure on profit margins'. The conjecture from that is that once demand lifts in this economy, profit margins are going to have to be restored by rising prices. Now suddenly, the significance of this unit labour cost thing is that there's an alternative to rising prices. Profit margins can be restored by falls on the cost side.

PETER MARTIN: So, interest rates can dive without pushing up inflation, but how low?

DAVID LOVE: You are starting to approach a kind of generational change.

PETER MARTIN: So, we're going back to the era of Sir William McMahon, Harold Holt?

DAVID LOVE: You're going back to the years when interest rates were controlled, yes, when governments controlled interest rates and sat on interest rates.

PETER MARTIN: And is there a cost to achieving that end?

DAVID LOVE: You can't have the swift pick-up in employment that we had from 1982-83 in this situation. It must be a much more gradual affair.

PETER MARTIN: So those people who have lost their jobs can expect to remain out of work, a good deal of them for longer than in the last recession?

DAVID LOVE: Yes, that is definitely the cost. They will be unfortunately part of the price paid for what could be a quite dramatic secular change.

RICHARD PALFREYMAN: David Love, the executive chairman of Syntec.