Interest rates; international economy; Assassination of Pim Fortuyn

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Interest rates; international economy; Assassination of Pim Fortuyn


Wednesday, 8 May 2002
12 noon


SUBJECTS: Interest rates; international economy; Assassination of Pim Fortuyn


Well as you know the Reserve Bank this morning increased official interest

rates by a quarter of a per cent and that is likely to push up home mortgage

interest rates by a quarter of a percent. On a $100,000 mortgage that would

be around $20 a month meaning that home mortgage interest rates are now still

four and a quarter per cent lower than they were, when the Labor Party left

office and the Coalition was elected, and the savings to your average home buyer

is still $350 a month as a consequence.

The Bank referred particularly to developments on the international economy.

That it looks like the United States has now pulled itself out of recession,

although overnight the Central Bank in the United States did not move interest

rates, said that it still thought that demand in the United States was a bit

uncertain. So what we can say is this, that America looks as if it has come

out of recession, which is good news. That means that the international environment

is a little less hostile than it was earlier on, but Australia still continues

to out-perform the world by a very long margin and the good news is that our

economy is growing much stronger than America, or Britain, or France, or Germany.

And it is providing new job opportunities, unemployment has been falling in

Australia whilst it has been rising in America, and that is the good news for

the outlook.


But the Reserve Bank has identified a couple of domestic problems, overheating

in the residential market and expanding household debt. Is a one quarter of

one per cent increase sufficient to curb those problems?


The principal reason that the Reserve Bank referred to, and I agree with it,

is that it looks as if America is going to pull out of recession. We have been

through a world economy where the world’s largest economy was in recession,

countries in our region, like Singapore and Taiwan and Japan – Japan is still

in recession, America looks like it is growing, that is good news for Australia

and it is good news for the world. But the American economy is not growing anything

like the strength of the Australian economy. Australia just out-performs the

world on all of these measures. But the good news of recent developments is

it looks as if America might be growing again which is good for world growth

and it will be good ultimately for Australia.


Treasurer, is this not the beginning of a new cycle of interest rate rises?


Look, I think it would be a mistake to sit down and to say that, rather than

digest today’s news we will start thinking about next year’s news, Paul. Today’s

news is that the world economy is looking stronger and as a consequence, the

Reserve Bank does not see the kind of risk that it did 6 months ago…




…the corollary of that is that mortgage interest payers are now paying four

and a quarter per cent less on their mortgages than they were when the Labor

Party left office, that their saving is $350 a month rather than $370 a month,

but it still a pretty good saving at $350 a month and I think that is good and

supportive for families.


Treasurer, is the Reserve Bank right to be concerned that households may become

seriously over-extended, though, with debt?


I don’t think that there is evidence about over-extension in relation to debt.

People have been taking advantage of low interest rates. If you have low interest

rates people can afford to borrow more. That is what people do, that is one

of the reasons why you lower interest rates so they can borrow more and you

would not be, you would not be surprised if they responded in that particular

way. I think if you actually look at the last 4 or 5 years, that Australians

have been borrowing more on the back of low interest rates, but they have been

doing it against rising assets.

And that has been a good thing, actually, that they have had rising assets

which has given them security to borrow against.


Treasurer, what does this do to your Budget strategy in terms of stimulating

the economy or dampening it down?


Well, this, the Reserve Bank’s assessment is much the same as our own, that

in 2001 the United States went into recession, as did France, and Germany, and

Japan, and Taiwan, and Singapore. In 2002 it looks like America is pulling out

of recession. In 2001 Australia’s growth rate was ten times that of the G-7,

it will still be far in excess of the G-7 in 2002, but the G-7 is coming back.

Now, this not a bad thing, this is a good thing. It is a good thing that America

is pulling itself out of recession, this is will be good for global growth,

and as a consequence of that that will help our exporters, and that is a good



Does that mean there is a case for fiscal policy to be tightened as well?


Well, I will talk about fiscal policy next Tuesday.


Treasurer, what is your response to the murder of the politician in the Netherlands?


Look I think political assassination, wherever it occurs, is something that

is absolutely deplorable and regrettable. I am not sure that I would agree with

that politician on much at all, but if you disagree with somebody the way to

demonstrate that is through argument or at the ballot box. I think it is a bad

day for the Netherlands, it is a bad day for Europe. Nobody who believes in

democracy and the rule of law would take any joy out of that and I hope that

those responsible are brought to justice and a very strong message goes around

the world, particularly in the democratic countries – you do not resolve arguments

that way.