MOORE: Prime Minister, good morning.
PM: Good morning, Ali.
MOORE: It is the first time since we were in deep recession that we have got a reduction of that size, a lot of people are now thinking ‘gosh, it must be bad.'
PM: Well the global financial crisis, I think every one of your listeners has been watching and reading what has been going on around the world. The facts speak for themselves: in recent times you have had 25 banks around the world fail or having to be bailed out. It's serious and Australia is not immune from the impact of what's going on in the global economy and the global financial community. But the Australian economy continues to perform, continues to have strong prospects. Growth remains positive.
In most economies in Europe it's gone negative. We have a strong Budget surplus, most of the economies in Europe that are wrestling with this challenge at the present are already in Budget deficit territory by a big order of magnitude. And then on top of that, we have strong business investment growth into the future. I believe therefore, that there are strong rational grounds for Australians to remain optimistic about our future economic prospects.
MOORE: The Reserve Bank has warned, obviously, of a sharper than expected deterioration in conditions, that's what's led to this very large cut, but I wonder if you think it's going to be enough? It gave our market a bit of a boost yesterday but the SPI, the futures, are telling us the market's going to close down 5.7 per cent this morning. We're seeing Wall Street down massively again. Is this one per cent enough to give people the confidence you're saying they should have?
PM: Well, global financial markets are in a continued state of turmoil. We've seen the recent controversy in the United States over the non-passage of that $700 billion program, and then its much later passage by the Congress.
MOORE: And the market's been worse since it was passed, it's down 900 points in two days.
PM: And plainly, there are confidence questions alive across the United States as there are across Europe, but there are fundamental distinctions between the state of our major banks here in Australia and the state of major banks in the United States and in Europe. The balance sheets are strong. We have the best bank regulators in the world and because of that and because we have strong budget policy with a $22 billion surplus as a buffer for the future, we are best positioned of all economies in the world to see Australia through this global economic storm.
MOORE: Is 0.8% of the 1% that most of the big banks have passed on to mortgage holders. Is that equivalent to the maximum pass through that you were calling for?
PM: Ali, we have always said that we have a responsibility to maintain the stability of the financial system. I know others have gone out there and run a politically populist line, but my first responsibility as Prime Minister and Treasurer's responsibility is to maintain the stability of the Australian banking system. Therefore it has been important through this decisive action for the Reserve Bank for there to be maximum assistance to households and we have seen that through the decision by the commercial banks in terms of the 0.8 pass through.
But as the Treasurer said yesterday when financial markets stabilise we expect the banks also to pass through the rest over time. But this measure itself and I am sure your listeners have been listening to what it means, but if you are on an average Australian mortgage of something in the vicinity of $250 000 that means that this results in a monthly repayments reduction of $136. This is significant decisive action but the Government itself remains committed to decisive action for the future through bringing forward our nation building agenda which I spoke about the other day.
MOORE: Kevin Rudd you talked there obviously of being financially responsible, I suppose, in terms of the banks. But at the same times as you have been warning about their potential inability to pass on the full rate cut. Let's just take the Commonwealth Bank, they are expected today possibly to announce they purchased Bank West for $2 billion, and they're cutting deposit rates, which I would have thought goes well against the grain when they needed all the domestic funding they can get. Isn't there sort of a slight contradiction here. The banks have got billions to spend on purchases, (inaudible) cut their deposit rates, but we can't force them to pass on the full rate cut because they can't afford it?
PM: Ali, let's stand back from it all and almost go back to your first question about the intensity of the global financial crisis and how it's affecting banks around the world - 25 banks around the world either failing or having to be bailed out.
One of those, of course, in the United Kingdom has been HBOS, and one of its subsidiaries is BankWest -
MOORE: I understand all that, but I'm talking about, HBOS is not currently going out and spending $2 billion on a rival financial institution.
PM: But BankWest is part of the Australian financial system. And therefore, and I'm not going to comment on any market related matter here, but our responsibility as the Government, and more broadly across the Australian financial system, it is this: to maintain the stability of Australian banking system.
Therefore, if you've got a subsidiary, which is BankWest, which operates in Australia, a subsidiary to a British banking group which has found itself in difficulty, it is important to stabilise the system -
MOORE: So you're saying that they're not working for their own good? They're actually working to stabilise the system?
PM: Ali, what I'm trying to do is explain a very complex reality which is out there. You've got a global financial crisis which is knocking global banks over left, right and centre. My job, and sometimes it's going to be very unpopular, is to argue in defence of the stability of the Australian banking system. That means making sure we get these decisions right.
MOORE: Thank you very much for joining us this morning.
PM: Thanks, Ali.