PRESS CONFERENCE ON
INTEREST RATES
Tape begins as follows:
Prime Minister
but we are expecting also that for overdrafts over
$ 100,000 they mightn't all come down by the same amount.
But there will be general expectations that the average of
the reductions would also equal a half percent. It ought
to be noted that in that area, competition over the last
two or three months, as we are advised by the banks, has
already forced reduction of about .2 percent so that in a
sense has led to moves now being announced officially by
the trading banks of Australia. This is further confirmation that
the Government's policies are working. They are going
to continue to work and our objective will be to see a steady,
continued and sustainable reduction in interest rates. And
I think this is very pleasing news and indicates that we are by and
large on track in this area.
Question
What effect do you think these reductions will have?
Prime Minister
It's a further mark in reducing inflation. We've indicated
on a number of occasions the effect that reduced interest
rates have on businesses; reduces the cost of money to them
and as reductions become more pronounced over time, the
advantages to industry, to farms, is obviously going to be
significant. There is encouragement after so many years in
which interest rates have tended to move in the. wrong' direction
to know that the efforts to get rates down is now starting
to bear fruit across the generality of overdrafts.
Question ( Peter Harvey)
( Inaudible)
Prime Minister
Well it is worth noting that the housing area did come down
earlier this year by half a percent. Quite obviously with
the continuation of the Government's policy that in the
future we will be looking for further reductions in the
housing area. This matter has been discussed in recent times
but it is hoped that these moves should take place and be
established and then that will be further assessed.
Question ( Peter Harvey)
moves will apply pressure though, surely? t../ 2
PRESS OFFICE TRANSCRIPT1 NOVEMBER ' 1978'
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Prime Minister
Of course it will and I think that also in a gentle way
applies some pressure on Premiers who are often have a
closer relationship to their building societies of course,
than we do. I would hope that
the Premiers would be looking at what they could do to
help with the general moves down, very earnestly, as a
result of this.
Question Can we expect another reduction in the fairly near future?
Prime Minister
I'm not going to put a time scale on it. Let me just say
that the policy is working and under the policies that we
have in place we would expect that the movement would be
steady and sustained and quite obviously, a further reduction
in the housing area would also be extraordinarly beneficial.
Question would you expect that this move now will significantly
stimulate the employment situation?
Prime minister
What happens in economy is a result of the effect of policies
over time. You are not going to get to one particular point,
one particular event, one particular day-and suddenly say
look, this is meant to be the breakthrough
because I don't think an economy works like-that. You need
to have in mind the changes that have been taking place in
the Australian economy over the last two or three years
One of the things I've noticed which heartens me greatly;
the reactions from people and industry over recent months
has been much much more optimistic for the future. Now it's
still patchy but a number of industries are looking
forward to the future with greater confidence, with better ' orders
Many are getting into export markets and there is the kind of
example General Motors that's been quoted that's put on many
hundreds of people over recent months,-expectations of
putting on more over the next few months, another 500 or 600 by
about April and that's a major industry. But in a number of
smaller industries we've found them getting back into export
markets. The sporting goods manufacturers are again seeking
export orders. Many firms, use the example of colour television
sets to Hong Kong, women's underwear to Japan made in Australia,
furniture to Sweden, Australian-made saddles are being sold
in Denmark and Germany and Etirope, Southeast Asia and none of
this could happen if there wasn't a reasonable cost base in
Australia and if Australian industries weren't competitive, if
they weren't producing a quality product. Now two years ago
we didn't find this sort of activity, we didn't find this sort
of interest, this determination to get up and do things. It is
now becoming evident, through Australian manufacturing industry.
We know unfortunately that of all the indicators employment is
going to be the last indicator to respond. But the feeling / 3
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PRIME MINISTER ( continued)
going around the manufacturing sector is one of much
more enthusiasm and I think it will be present for some
time. Question Do you think the trading banks wanted to do this or have they
relucantly acted because of...
Prime Minister
I think they've reacted to the market forces as much as
anything else, because I made the point that over the last
two or three months overdrafts over $ 100,000 have come down
as we have been advised, by an average of .2 percent and
that's been quiet and unobtrusive. If people have been watching
the marketplace I think they would have been aware that the
deposit rate for large deposits, that's over $ 50,000, has
come down over the last three or four weeks and these are
moves that the banks have initiated on their own. You've got the
market situations I think and Government policy also because
that can help to establish the market situations, have put them
in the position in which the responsible thing to do is to
make this move in lowering interest rates.
Question
The banks were saying only two or three weeks ago that they
thought the time was not right for a move down and they
mentioned ( inaudible) Was there a deal done,..
Prime Minister
No, there was no deal in relation to that. At the very time
in which that particular statement was made the banks had
already started to move their deposit rate down on large
deposits, which seemed to be somewhat in conflict with the
public statement. As I indicated, the interest charged on
larger overdrafts had started to come down two or three
months ago.
Question How would you account for that apparently conflicting position?
Prime* Minister
I think you would have to ask somebody else that.
Question Why. was the loan announcement made last night, which is two
weeks before the opening of the loan. It is normally made a
week before the opening of the loan.
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Prime Minister
Because there wasn't going to be a cash loan in addition
to the conversion loan and the sooner the market began to
know that the better.
Question There have been instances in the past where there have been
cash loans and the announcement hasn't been made that early?
Prime Minister
The rates advised were the rates proposed to us by Bank and
Treasury advisers in this particular matter. Eric might like
to add to it, but this came to us in the normal way and
the Premiers were advised. I don't think there is anything
unusual in relation to that.
There was nothing abnormal in the procedure taken on this
occasion at all? The Premiers were telexed in the same way
loan council and it was thought desirable that this information
there wasn't going to be a cash loan. ( Inaudible) there was
nothing extraordinarily unusual in the procedure.
Prime Minister
This is another area where if you watch the markets you would
have been able to see that the Reserve Bank had been operating
in the market to bear down on interest rates ever since the
so-called indigestion period, in inverted commas, when the last
loan had concluded.
Question The market was decidedly edgy, from my reading . of iti-and this
was generally regarded in the markets as an attempt to settle
it down. They didn't expect the announcement a w.. eek earlier
than normal. Would you like to comment on that?
Prime* Minister
I wasn't aware of any edginess. I don't know how you make
that sort of judgement.
Question Well, there was a certain amount of selling pressure developing
in the market.
Prime Minist'er
Yes, and if you look what had happened in the United States
and the index there and in other markets overseas, If you look
also at the implications for the European monetar system,
which as I understand it will enlarge the market or the access
in market for those in Britian for example who might want to
buy Australian dollars to invest in the Australian market, there
are a number of events occuring overseas that have -implications.
Prime Minister*( continued)
This is I specifically asked a question in relation to
the stock market and that's the sort of answer, again, I
was given.
Question Would you expect an increase in the volume of lending by
the banks following this reduction?
Prime minister
The bank lending has been at fairly high levels, I understand
it, over recent weeks. I think it's the cost of living as
much as the volume...
Question
Would you expect an increase in the volume of loans?
Prime Minister
I wouldn't have thought particularly.
Question Isn't there limit on that agreed between banks and the
Reserve Bank?
Prime Minister
Yes, but it is not an arbitrary limit.
Question Is that limit still going to stay the same.
Prime Minister
There is a general guideline but it's you know you don't
hit the same level each particular week. It's a general trend
line. Question That's not going to change for a year?
Prime Minister
There has been no advice to change. ./ 6
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Question Do you expect this reduction in interest rates to affect
in any way the amount of money coming in from overseas.
Prime Minister
I wouldn't have thought so.
I would have thought that the major determinent of that
is our rate of inflation compared with other peoples.
Question Have you had any contact yet with any of the Premiers and
did they hope that or expect that the building societies
will follow...
Prime Minister
I haven't had any contact with the Premiers yet. I will be.
I wouldn't go anticipating further moves imminently. I wouldn't
want to leave that impression or I wouldn't want you to draw
that conclusion but I did make the point that Premiers are
in a position to influence building society rates. Some
Premiers more so than others because they have the statutory
relationship. State Government to building societies differs
between the states.
Question But you wouldn't expect such moves in the next say three
months? Prime Minister
Good heavens, I'm not putting a time scale on it.
Question How does this change affect your target for bringing down
infrastructure by 2 percent this year?
Prime Minister
well, some rates will have come down very nearly by that amount.
It's I think I've got some rates here, not all but I think
again if you look at the words I used, because this-is not uncommon,
the words I used were chosen carefully -XASD 1.25; Commonwealth
Bonds 20 years 1.7, 10 years 1.6; finance company, commercial
mortgages 2 percent; industrial debentures 1.5 percent; some
of the moves down, a number A~ diverse areas are now quite
substantial. Question ( Inaudible) t ./ 7
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Prime Minister
September, ' 77.
Question I think your actual words were what cost to ordinary people...
Prime Minister
Some important rates could come down by up to 2 percent.
Question I think there is another quote about what people housing
payments. Prime Minister
I gave an example of what a 2 percent reduction would mean for
housing. Question ( inaudible)
Prime Minister
Half a percent. But the two percent wasn't specifically
related to housing.
Question That was an example you gave, wasn't it?
Prime Minister
yes. Question Do you expect to meet your monetary target for M3
of 6 to 8percent by reducing further interest rates?
Prime Minister
I have been given advice today that there is no reason why
monetary targets should not be met.
Question Was that based on a belief that there were seasonal factors
operating out and pushing money supply up?
Prime Minister
There are always seasonal factors. One of the factors that
is operating from now on are various tax changes.
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Question Do you see the tax changes taking a great deal of money out
of money supply?
Prime Minister
They are a factor but that's only one of many factors that
operate. 000---