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

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

7 October 2008

Interview with Philip Clark

Radio 2GB, Sydney

7 October 2008

SUBJECTS: Interest Rate Cut; Global Financial Crisis; Ratings Agencies

CLARK:

Mr Swan, good afternoon.

TREASURER:

Good afternoon. How are you going?

CLARK:

I'm well. It's a dramatic day. Does the size of the cut indicate the size of the crisis that we're in?

TREASURER:

I think the size of the cut indicates that the Reserve Bank has observed that the upheaval that's occurring in international financial markets is very significant and it has flow-on effects to this country. There's no doubt about that. So, they've decided that it's time to loosen monetary policy, because monetary policy was still relatively tight in this country compared to many others. I think it reflects the changes that have occurred internationally, particularly in the last fortnight. And of course, this will be of considerable benefit to families out there with a mortgage and particularly to business out there. I mean, 80 basis points, I think, is what Westpac have talked about. That's a very significant cut. That's something like more than $128 a month for someone on an average mortgage of $248,000.

CLARK:

If you were sitting on a $500,000 mortgage – not uncommon here in Sydney – you'd get about $350 a month if they passed the lot on, which is significant – $90 a week or so.

TREASURER:

Yes, it is.

CLARK:

Do you think the banks are justified? It looks as though they're going to go in and around 0.75 – 0.8 per cent. Is that, in your view, a sufficient amount of rate cut to pass on?

TREASURER:

Well, certainly I've been saying to the banks that I expect them to pass on the maximum amount that is consistent with stability in the banking system. And the problem that's emerged, particularly in the last fortnight, is that short-term funding costs for the banks have simply gone through the roof, and the situation now is not similar to the situation a month ago when they passed on the full amount of the cash rate. But I'll tell you what, I absolutely expect when conditions in the market normalise that the full amount of the cash rate is subsequently passed on by all of our banks. At the moment it's difficult. We are in very difficult times in financial markets. But it's pretty good to see an 80 basis point cut there from Westpac. That will be a very big benefit to a lot of businesses and families out there.

CLARK:

Are we headed for a depression?

TREASURER:

I don't think that that sort of talk is helpful. There's no doubt there's been a significant upheaval in international financial markets. In this country there's a hell of a lot going for us. We've got a strong Budget surplus. We've got tax cuts in the system. We do have a well-regulated banking system. We've got our investment funds. All of those things are running pretty well for this country. So, I guess if you'd want to be in any country in the world in these circumstances, this is the one you'd want to be in.

CLARK:

You've said that Australian banks are strong, but news today they're borrowing from the Future Fund. Is this the only place they can get money from these days?

TREASURER:

What's occurred on international financial markets is that there's basically, Philip, a credit crunch and if money is available it costs the Earth. For many, it's simply not available because of these events that are external to this country and that has made it difficult for all of our borrowers to access funding at an affordable rate, or indeed for some, to access it at all. And that's why the Reserve Bank has for some considerable period of time, and will through the future, be attending to the liquidity needs of our banking system. Our Reserve Bank's done a good job of all that in recent times.

CLARK:

You've said that banks should pass on the rate cuts in full when conditions normalise. When is that going to be?

TREASURER:

I can't tell you when conditions will normalise. We are in the hands of others elsewhere in the world.

CLARK:

Are we looking at years?

TREASURER:

I can't say, Philip. I'm not a fortune teller here. The most important thing for me to do is to strengthen the fundamentals here, to put in place policies in those areas that we control because so much of what is occurring here is outside of our control.

CLARK:

What's your view of the activities of the ratings agencies like Moody's and Standard and Poor's who gave the thumbs up to these dodgy investments which have sparked the crisis in the first place?

TREASURER:

We've already announced many, many months ago a review of the operations of rating agencies. You might not be aware but we've been responding all year and working with a body called the Financial Stability Forum internationally to put in place new settings not only here but around the world.

CLARK:

The opinions of these outfits aren't worth the paper they're written on, are they?

TREASURER:

Well, certainly they haven't performed with glory in recent years, looking at what's occurred in the United States. There's no doubt about that, Philip. And many involved in that system, both in terms of the failure of regulation and, I guess, the ethics of some of the people involved in the companies are certainly open to question.

CLARK:

Is this the most serious financial crisis that Australia has experienced in our lifetime?

TREASURER:

It is certainly significant. I wouldn't necessarily go that far. But we are now looking at a very significant international upheaval. You've seen not only events on Wall St over the last couple of weeks, but we're seeing the scale and magnitude of events in Europe in recent days, and certainly it's a rocky road out there, Philip.

CLARK:

I know you have to go. I appreciate your time. It's a busy day, Mr Swan. Thank you for your time.

TREASURER:

Good to be with you.