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House of Assembly - Fifty-First Parliament, Second Session (51-2)
2008-04-29 Daily Xml
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Ministerial Statement

INTEREST RATES

The Hon. M.D. RANN (Ramsay—Premier, Minister for Economic Development, Minister for Social Inclusion, Minister for the Arts, Minister for Sustainability and Climate Change) (14:04): I seek leave to make a ministerial statement.

Leave granted.

The Hon. M.D. RANN: Today I have written to the Governor of the Reserve Bank (Mr Glenn Stevens) concerning any future increases in interest rates.

Members interjecting:

The SPEAKER: Order!

The Hon. M.D. RANN: I heard a story that the opposition was going to be out on the street in their Speedos or something on a tram—that beggars belief. I think there were two other opposition leaders interstate in New South Wales and Victoria who did the Speedo thing.

Today I have written to the Governor of the Reserve Bank, Mr Glenn Stevens, concerning any future increases in interest rates. The Reserve Bank Board meets next Tuesday 6 May and will decide whether to hold rates steady or increase them. The bank board targets an inflation rate of between 2 and 3 per cent. The CPI for the year to March announced last week was 4.2 per cent. Many commentators now expect the bank to raise rates from the present 7.25 per cent. Of course, people are aware of the collateral damage caused when the banks go even further, including in recent days much further, in hiking up their own interest rates.

Let me say at the outset that I admire the job the Reserve Bank has done in recent years and I am aware of the difficulties it faces at this time, but I have written to Glenn Stevens urging the bank not to put up rates next Tuesday and to take time to assess carefully conditions as they emerge. This is critical for maintaining jobs and economic growth. It is critical to all sectors of our economy, but particularly to our farmers in South Australia who are still in the grips of the worst drought ever recorded.

It is crucial that housing affordability be improved. As a nation, we cannot afford to increase the ranks of the many young people and low to middle income earners who have already been priced out of owning their own home by past interest rate rises. We know that, with official rates at 7.25 per cent, most house loans and mortgages are at considerably higher levels.

The latest headline 'CPI inflation rate of 4.2 per cent' has, in the view of many pundits, increased the likelihood of a further interest rate rise in the near future. But there are good grounds for waiting to see what has been the impact of previous successive rate rises and to see whether the factors causing the rise in inflation will be short or long lived. Clearly, the latest inflation figure for the year to March takes Australia above the bank's 2 to 3 per cent target range, but the Reserve Bank has the ability to be flexible and should be patient.

In my letter to Mr Stevens, I pointed out that our current inflation woes are the result of relative price shocks in areas such as food, petrol and energy and the rental market but, in terms of petrol and food, much of it is imported. I also pointed out that Australia is not alone in having an inflation problem. Almost all countries are experiencing inflation above the targets of their various central banks.

I pointed out that we do not know for certain the future course of food and oil prices. We have had some significant price rises in these areas but we need to look ahead, not just through the rear vision mirror. A rise in food or oil prices does not constitute a continuous process of inflation unless they rise continuously or if they spill over into a wage price spiral.

I am also concerned about the potential for an over-shooting on interest rates that could damage Australia's strong economic and jobs growth, further harm our rural sector and place home ownership beyond the reach of many more young Australians. We are all aware over the decades of promised soft landings becoming very hard ones because of over-corrections. That must not be allowed to happen now. So, I am simply asking the Reserve Bank of Australia to put a finger on the pause button to see the impact of previous rate rises before doing something that might just over-correct and cause a hard landing.

This is why I urged that the bank definitely refrain from any interest rate rise next Tuesday and why I urged the bank to be patient. The bank's charter allows it the flexibility to live with inflation for a period during which inflation can be brought under control without longer-term damage to economic growth and housing affordability.

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