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Thursday, 9 March 1972
Page: 602


In the Senate on 26th October 1971 Senator Webster asked me, as Minister representing the Treasurer, a question concerning interest rates. The Treasurer has provided the following information in reply to this question:

Monetary policy is one of the more important and flexible instruments available to the Government to stimulate or moderate economic activity as the situation may require. Until recently monetary, policy, in conjunction with fiscal policy, had for some time been aimed generally at moderating Inflationary pressures that had developed in the economy. To the extent that such action resulted in a reduction in the rate of growth of loanable funds, it contributed to a somewhat higher level of interest rates, including bank interest rates. However, I would mention that other factors have also been important in determining movements in interest rates over recent years, including in particular the steadily increasing competition for funds within the economy.

While it is not possible to quantify in precise terms the impact of monetary policy, or specifically higher bank interest rates, on the economy, T consider that such policy played a very significant role in moderating the inflationary pressures that were emanating from demand forces in the economy.

I am aware of the falls in interest rates in certain overseas financial markets, including the reductions in the official discount rates in Germany and Italy which Senator Webster referred to in his question. While reductions in overseas interest rules should not necessarily be seen as creating a precedent for interest rate adjustments in Australia, substantial action has been taken on the monetary front in recent months. Taking into account the lower yields for the February loan, yields on all government securities have been reduced by 1 per cent or more since last September. In addition there have been significant reductions in bank interest rates with the maximum overdraft rate being reduced by 0.5 per cent per annum and bank deposit rates falling in some cases by up to 1 per cent. Action has also been taken to remove the restraints on bank lending and a large release was made from Statutory Reserve Deposits in late December.

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