The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

9 January 2008

Interview with John Gatfield & Nina May

Sky News Business Channel

Wednesday, 9 January 2008

SUBJECTS: CBA rate increase, US sub-prime crisis, inflation outlook

MAY:

I guess it comes as no surprise does it?

TREASURER:

Well I think this decision is not welcome news for Australian families and as I said yesterday the Government and Australian families will judge banks harshly if they announce excessive hikes in their lending rates.

GATFIELD:

But as we know, the Commonwealth Bank has lifted its home loan rate by 10 basis points to 8.79 per cent. Very similar figures, I guess, to NAB, which is 8.69 and ANZ by 8.77 and surely you now would have to expect that Westpac and St George would follow suit?

TREASURER:

Well, I do know that the Commonwealth Bank has increased their rates significantly less than some of the other banks and, as I said yesterday, banks will be judged harshly by their customers in a competitive market for any excessive interest rate increases, whilst those banks which keep increases to a minimum will fare a bit better and the Commonwealth Bank is at the lower end of the scale.

MAY:

Now the Commonwealth we hear has something like $186 billion in savings so, perhaps at the least, the bank that was least expected to raise its variable rate?

TREASURER:

There is no doubt that the increased cost of borrowing on international financial markets has certainly impacted on all Australian banks. But as again I said yesterday, excessive increases will be judged very harshly by Australian families and by the Australian Government. Because, you see, we have had 10 interest rate rises in a row in official terms under the last government, so this increase comes as a significant blow for families with mortgages.

GATFIELD:

Well, you were critical of the ANZ Bank, are you critical of Commonwealth? Did they have to raise their rates and did they have to raise them by as much?

TREASURER:

Well certainly there has been an increase in borrowing costs by the major banks and there were going to be increases. In fact, there were four such increases under the previous Government. What I said yesterday is that what we wanted from the banks was a fair go for their customers whether it was for Australian families or Australian businesses and to keep these rises to a minimum. As I said yesterday, the ANZ was at the upper end of the scale and therefore I thought it was excessive. Thankfully, this one today is at the lower end of the scale. But ultimately, customers will make their judgements and vote with their feet.

GATFIELD:

Yes, but they can't just swap from one bank to another. As Nina said a moment ago, CBA has got $186 billion in reserves and savings. Surely, do they really have to increase their rates at all?

TREASURER:

Well, that is a matter for the CBA to explain, but when I met with officials yesterday, they indicated to me all of the background evidence that would indicate that some increases from banks have been excessive and some have been reasonable in the circumstances.

MAY:

Treasurer, the line that we are hearing from you this afternoon is very very similar, almost identical, to what we heard from the previous Government when then Treasurer, Peter Costello, would say basically customers could vote with their feet. Realistically, is there anything that the government can do about this or say about that line? Is there anything that the Government can do about this or say other than that line?

TREASURER:

Well, the line isn't similar to the previous government. Treasurer Costello had six official interest rate rises in a three year period and essentially has bequeathed to the Australian people a period of elevated inflation which is putting further upward pressure on interest rates. What we have said very clearly from day one is that we will deal with those inflationary pressures in the Australian economy that are putting pressure on interest rates in the official sense of the word. But also what we want to ensure from the banks is that when they increase their rates caused by the increase in borrowing [costs] from the sub-prime crisis, they do so by keeping them at a minimum and not taking the opportunity, if you like, to make additional profits from that move. That's what I said very clearly yesterday and I think customers out there will judge those banks that have increased their rates by substantially more than others quite harshly.

GATFIELD:

The Reserve Bank Board of course meets in the first week in February. Would you expect then to move on interest rates at all next month?

TREASURER:

Well I can't comment on the decisions of the Reserve Bank. They are independent in their decisions. What the Australian Government can do is provide maximum support to the Reserve Bank by doing everything it can possibly do to put downward pressure on inflation and ultimately downward pressure on rates.

MAY:

Should they? Should they move on interest rates?

TREASURER:

Well that is entirely a matter for the Reserve Bank. I don't give advice to the Reserve Bank. They are independent. They're a very important part of making sure that this economy is strong and I don't give advice to the Reserve Bank because they take their decisions independently. The job of the Australian Government is to deal with the inflationary pressures in the economy.

MAY:

Treasurer, do you have an opinion?

TREASURER:

Well, I can't comment on what the Reserve Bank may or may not do. It is not my practise. I don't propose to comment or give public advice to the Reserve Bank. I made that clear from day one.

GATFIELD:

It's not giving advice to the Reserve Bank to say whether you as Treasurer believe that a movement of interest rates upwards or downwards is necessary.

TREASURER:

I will put in place every possible measure that I can put in place to put downward pressure on inflation and therefore downward pressure on interest rates and make the job of the Reserve Bank as easy as it possibly is in the circumstances. That's my job.

GATFIELD:

So what are you going to do now to put downward pressure on interest rates?

TREASURER:

Well as I indicated in a speech at the end of last year, what we have got to do is start with some restraint from the Federal Government. That's why we have indicated that we will be looking for additional savings in the budget process. That's why we've indicated we will deal with the skills crisis and the crisis of education generally. And that's why we have indicated that we will deal with the infrastructure bottlenecks in the economy because those two areas are critical areas that put upward pressure on inflation, and upward pressure on interest rates.

GATFIELD:

Treasurer, do you think that the banks are being a bit sneaky here raising interest rates at this particular time when so many people are on holidays? Are they, perhaps, seeking to hide the bad news?

TREASURER:

Those are matters for the banks to fully explain to the Australian people, and not all the banks have done that. What I can do is indicate what is reasonable and what is unreasonable in the circumstances. I did that very clearly yesterday.