Reserve Bank, Interest Rates - Motion
Posted by Administrator (admin) on Oct 10 2008
2008 >>

Mr LAWLOR (Southport—ALP) (6.11 pm):

The motion by the member for Gladstone is moved in a climate of what could be the most difficult set of financial circumstances, certainly internationally, since the Great Depression. The federal Treasurer has made the point that the government expects that the
banks will pass on in full official rate cuts when conditions normalise. He said that the bottom line is that when conditions normalise the government expects that the banks will pass on full interest rate cuts. Whether we like it or not, until yesterday 25 banks around the world have either collapsed or had to be bailed out. Today it is reported on the internet site crikey.com, under the heading of ‘Consumer credit numbers show the US economy is in free fall”— It’s now clear that the US economy is in far worse shape than even thought yesterday. That is how quickly it is changing.
Figures overnight from the Fed on consumer credit show the biggest fall in the history of the recorded figures, and major industrial,
Alcoa, suffered a 52% drop in third quarter earnings and has joined the mighty General Electric in eliminating a share buyback to
conserve capital.

It then goes on to say—

... the Fed extended the boundaries of its “Lender of Last Resort” understanding; that is, by supplanting temporarily the frozen
$US1.6 trillion commercial paper market, the day to day lifeblood for American business activity. That is in the United States. In Britain crikey reported, under the heading ‘UK poised to bailout a
host of financial giants’.

... the biggest bailout of a national banking system so far—
will occur tonight our time— when the UK Government reveals a much leaked 35 billion to 50 billion pound plan to partly nationalise some of the biggest names in finance.

It then goes on to mention those particular banks. It goes on to say—
It will be the first concerted attempt by a national government to provide support to an entire sector. So we are operating in troubled times. I could go on with all of those things, but I think I have
made my point. The great point about all of that is that it has not happened in Australia because I think we have a strong financial system. Whether we like it or not, that strength is dependent upon strong banks that are well geared to withstand an economic buffeting and that can continue to fund and support their clients including homeowners and businesses. Make no mistake: in order to do this banks have to borrow money in a very tight market. In these circumstances that borrowing is more expensive. The fact is that it costs more.

The Reserve Bank of Australia took decisive action yesterday in reducing the official interest rate by one per cent. I do not believe that anybody in this House was expecting such a drop in rates. I understand that banks have indicated a drop to their customers of 0.8 per cent. That happened yesterday and today. That is not quite the full amount. But let us be real about it: that is pretty close and that is a lot more than anybody in this room would have expected was going to happen two days ago. If pretty close means that funds can be borrowed by banks to ensure client liquidity and normal business dealings, that is what we all want to see. It is important that the Australian banking system remains stable.

It seems to me that one of the reasons Australia has been able to absorb the global financial buffeting is a strong budget surplus. Let me assure this House in case I am accused of some sort of
petty partisan politics that I am talking about a surplus that has been built up over many years by a conservative government and continued and strengthened of course by the Rudd Labor government.
Not many countries around the world are able to boast about having such a budget surplus. One can only wonder if those senators who for I think crass political reasons attacked the original budget surplus
by opposing taxes on alcohol and luxury cars would do the same thing now in these current world financial circumstances. I think we would all hope not.

I do not believe that many borrowers would have expected that their borrowing rate would have been cut by 0.8 per cent just two days ago. I do not think any borrowers would have been expecting
that. But the Reserve Bank has taken decisive action and we all welcome it. When the Reserve Bank cut official rates by one per cent I think it sent out another message—that is, that inflation is no longer the danger that it was. That analysis will lead to interesting wage negotiations around the enterprise bargains that are now underway. To move on from that, the recent deterioration in prospects for global growth and much more difficult market conditions—
Time expired.

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