I) J4AUSTRALIA L
FOR PRESS5 DECEMBER 1977
The Prime Minister today released the text of an exchange of
messages regarding interest rates between himself and Mr. Wran
( copies attached).
Mr. Fraser drew attention to Mr. Wran's support for the
Government's interest rate policy in contrast to the criticism
by Messrs. Hurford and Hayden.
For example, Mr. Hurford on 12 November 1977 said:
" The drop in interest rates was only temporary..."
And on 14 November 1977 he said:
none of us ( Federal and State Labor Leaders) is going
to pretend that-the-ASB-interest rate is a significant one..."
"( There is) general realisation in the business community
that right now inflation is on the way up.-not down..."
( Note, in this context, that business is lowering debenture
rates, clearly reflecting lower inflationary expectations.)
And on 15 November 1977 Mr. Hurford said:
The Prime Minister, Mr. Fraser, was not telling the
truth about the outlook for interest rate cuts..."
Mr. Hayden said, on 12 November 1977, in respect of the
reduction in the rate on Australian Savings Bonds:
" It is scene-setting for the election with bad economic
policy" attempt to rig the money market..."
an inauthentic adjustment..."
it cannot last..." F77/ 290 .4
STELEX ; TO PRIME MINISTER FROM MR. WRAN. 30TH NOVEMBER, 1977.
THE RT HONJ. M. FRASER, M. P.,
PRIME MINISTER OF THE COMMONWEALTH OF AUSTRALIA,
CANBERRA. YOU WILL BE AWARE THAT IN A TELEX MESSAGE ON 8 NOVEMBER TO THE
CHAIRMAN OF LOAN COUNCIL I ADVOCATED A REDUCTION OF 0.5 PERCENT IN
THE INTEREST RATE ON AUSTRALIAN SAVINGS BONDS. I ALSO URGED THAT
ALL GOVERNMENTS. SHOULD TAKE APPROPRIATE ACTION TO
COMPLEMENT THE CUT IN THE SAVINGS BOND RATE, AS PART OF THE PROCESS
OF LOWERING THE STRUCTURE OF INTEREST RATES GENERALLY WHICH HAD
COMMENCED WITH THE PROGRESSIVE REDUCTIONS IN THE MARKET YIELDS ON
GOVERNMENT BONDS AND CONTINUED WITH THE DECISION TO REDUCE RATES
ON SEMI-GOVERNMENTAL BORROWINGS.
YOU WILL HAVE OBSERVED THAT REDUCTIONS HAVE SUBSEQUENTLY BEEN MADE IN
RESPECT OF GOVERNMENT GUARANTEED LOANS AND STATE SUPERANNUATION
BOARD LOANS TO TERMINATING BUILDING SOCIETIES IN NSW. I HAVE ALSO
ANNOUNCED A 0.5% REDUCTION IN CREDIT UNION MAXIMUM DEPOSIT RATES AND
ONE CREDIT UNION IN NSW HAS ANNOUNCED ITS INTENTION TO CUT ITS LENDING
RATE BY 1.5 PERCENTAGE POINTS FROM DECEMBER 1ST. THE BUILDING SOCIETY
MOVEMENT IN THIS STATE STANDS READY TO REDUCE ITS RATES IMMEDIATELY
THE RELEVANT BANK RATES FALL.
AT LEAST TWO OTHER STATES HAVE ALSO INITIATED ACTION DESIGNED TO
COMPLE4MENT THE CUT IN THE SAVINGS BOND RATE.
I AM THEREPORE PUZZLED BY YOUR REPORTED STATEMENT THAT YOU ARE
DISAPPOINTED THAT INTEREST RATES HAVE NOT COME DOWN, AND AM GREATLY
CONCERNED BY YOUR GOVERNMENT'S FAILURE TO ACT AS YET ON BANK INTEREST
RATES. IF THE COMMONWEALTH GOVERNMENT CONTINUES TO DELAY BRINGING ABOUT A
CUT IN BANK. DEPOSIT AND LENDING RATES, THERE WILL BE A GROWING DANGER
THAT THE MOVE TO LOWER INTEREST RATES ACROSS-THE-BOARD WILL LOSE
MOMENTUM AND, HAVING DONE SO, TURN BACK IN ITS TRACKS. THE LONGER
YOUR GOVERNMENT WAITS, THE MORE SPECULATION AND NERVOUSNESS WILL GROW
AND MAKE ACTION INCREASINGLY DIFFICULT AS THE FLOW OF FUNDS BETWEEN
BANKS, OTHER FINANCIAL INTERMEDIARIES AND GOVERNMENT SECURITIES IS
ai -tW L i
-2
PROGRESSIVELY. DISTORTED. THE CONSEQUENCES OF A FURTHER DELAY WOULD BE
PARTICULARLY SERIOUS SHOULD SUCH A DISTORTED FLOW OF FUNDS JEOPARDISE
THE FUNDING OF THE COMMONWEALTH BUDGET DEFICIT.
IT IS CLEAR THAT THE NECESSARY AND URGENT NEXT STEP IN THE PROCESS
OF REDUCING THE LEVEL OF ALL INTEREST RATES IS FOR YOUR GOVERNMENT
TO USE ITS PERSUASIVE AND STATUTORY INFLUENCE TO REDUCE BANK DEPOSIT
AND LENDING RATES. I URGE YOU TO DO THIS WITHOUT FURTHER DELAY..
I AM SENDING A COPY OF-THIS MESSAGE TO ALL OTHER PREMIERS.
MESSAGE FROM PRIME MINISTER T'O MR. WRAN. 5TH DECEMBER, 1977,
Thank you for your message of 30th November.
I feel strongly as to the need to reduce interest rates over the
wide spectrum as they affect all sectors of the community, particularl
those associated with home builders and, small business. I have no
doubt-that such, reductions will materially assist an relieving the
unemployment problem.
The Commonwealth Government is determined that there should be a
substantial reduction in all rates. I have recently indicated
that interest rates affecting the ge era. l public could be reduced
by up to 2% throughout the next 12 m nths. We have laid the
groundwork in the reductions in bond rates. I appreciate the
action that you have taken in the areas under your control, and
I have noted that some new issue rates for company debentures have
continued to decline...
However, also appreciate that downward movementsin rates have to
be associated with responsible financial management and proceed
in line with other economic policies. While determined t achieve
the objective I have mentioned I believe that it would be counterproductive
if movements in bank interest rates became an issue in
the election. 1 think you would agree with this.
fK
After the election we will move as quickly as practicable in the
direction I have indicated.
In view of the public interest in this matter, I propose to
release the text of your telex and of this reply.
( Malcolm Fraser)