TRANSCRIPT

THE HON PETER COSTELLO MP

Treasurer

Interview with Steve Liebmann

7.10 am

SUBJECTS: Interest Rates

LIEBMANN:

Joining us now from our studios in Canberra is Federal Treasurer, Peter Costello.

Treasurer good morning to you.

TREASURER:

Good morning Steve.

LIEBMANN:

Were you surprised at the Reserve’s move on interest rates yesterday

and are you comfortable with the decision?

TREASURER:

Well look, the Bank is an independent bank and I established it as an independent

bank so obviously we have entrusted it with these decisions. From time to

time we have different views about the strength of the economy. I said yesterday,

I think the Reserve Bank takes a very optimistic view of the world economy.

I, like them, think it is strengthening but I am not ready to call a full

blown international recovery yet. So, there are differences of nuances there

but the point about this is that the Bank has been entrusted with this responsibility

and it was my decision to do so.

LIEBMANN:

Well, the Reserve Bank Governor, Macfarlane, is saying delaying a rate rise

any longer would have been dangerous. Do you think he acted prematurely and

is he too concerned or is the Reserve too concerned with property?

TREASURER:

Well, what you see in the statement that the Bank has made, and it is instructive

to read the statement, is that mostly it is basing its decision on the fact

that it believes that the Australian economy will pick up as the world economy

will pick up. And I think the IMF made the point recently that interest rates

are not something that targets house prices. Interest rates are targeting

inflation. They look at general economic conditions of course but we are really

looking at trying to keep the economy growing in a low inflationary way when

we make these decisions and I know that all of the focus has been on house

prices but that is not really the focus of interest rate settings.

LIEBMANN:

So Treasurer do you expect there will be more rises? BIS Shrapnel is saying

rates could be 10 per cent within two years.

TREASURER:

Well I know that there are many pundits that predict many interest rate rises.

As I said yesterday, some newspapers have predicted six of the last one interest

rate rise and you will get many pundits that will be out there with their

opinions. Unfortunately Steve, as the Treasurer, I don’t and can’t

and won’t comment on the future direction of interest rates except to

say this, and I have said this on many, many occasions, people have to remember

this, interest rates are at historic lows. To have an interest rate with a

six in front of it is something that we haven’t seen for 30 years. And

when you are taking out a 25 or a 30 year loan, you must allow for the fact

that interest rates can vary over that time and will vary over that time.

Even over the course of this Government, the interest rate has averaged 7.15

per cent and under the previous Labor Government interest rates averaged 12

per cent. So when people are making decisions, just because you see historically

low rate now, don’t assume that that will be the rate for the next 25

or 30 years.

LIEBMANN:

So just finally, if you were out house hunting this coming weekend, what

would you be doing? Would you be backing off? Would you be waiting a while

to see what the Reserve is going to do? I mean, what sort of message does

this send to borrowers?

TREASURER:

Well, I would say to people, look, when you are looking for a house, bear

in mind that people are firstly looking for a roof over their heads and they

want to be sure that over the course of a mortgage, in 20, 25 or 30 years,

they will be able to sustain that mortgage. And I would say to people, pitch

for a price which builds in a bit of cushion on your interest rate because

an interest rate with a six in front of it is lower than the average for this

Government over the last seven years, it is half the average of an interest

rate under Labor which was 12 per cent and you are taking out a loan for

25 or 30 years. So just bear that in mind.

LIEBMANN:

I think you are saying tread warily. Thanks for your time Treasurer.

TREASURER:

Thanks very much Steve.