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

8 October 2008

Interview with Lyndal Curtis

ABC Radio AM Program

8 October 2008

SUBJECTS: Interest rates; commodity prices; economic growth; Budget

CURTIS:

Wayne Swan, the banks have passed on 0.8 of the one percentage point interest rates cut. Is that good enough?

TREASURER:

Well, certainly this will be welcome relief for families and businesses. It's a substantial easing of monetary policy and because of that it will certainly strengthen the economy. We always like to see more, but of course in these circumstances where funding costs are through the roof on international markets, the pass through that was something like 80 basis points is certainly welcome.

CURTIS:

Credit will ease at some point. When that happens, should the banks pass on the remaining 0.2 of one per cent, and when you expect that will be?

TREASURER:

Well, most certainly the Government expects that the banks should pass on the remainder of the official cut in the cash rate when financial conditions normalise. But as the Reserve Bank said yesterday and the IMF has said overnight, we are in the middle of a very big financial upheaval in financial markets, particularly in the United States and in Europe and, of course, that will continue for some time. We've got a rocky road ahead, but I guess if you were in any country in the world in these circumstances, the country you would want to be in is, of course, Australia.

CURTIS:

Are we yet to see the worst of the credit crunch in Australia?

TREASURER:

Look, I'm not going to make predictions about the credit crunch. It's been with us since August last year and certainly the upheaval on international financial markets is substantial. What we have to do is to concentrate on the things that we control, and that's what the Government has been doing all year. Building a strong budget surplus, making sure that our financial system is even stronger by putting in place key reforms, building our investment funds so we can invest in infrastructure for the future. They're the things that we control and they are the things that make Australia a far better place to be in, in this environment, than any other country in the world.

CURTIS:

The last time, though, the Reserve cut interest rates by this amount was as the country was heading out of a recession. Is this a sign that the economy is headed for much worse times than were expected?

TREASURER:

The circumstances are entirely different on this occasion. What's occurred here is a massive upheaval in global financial markets. That's what the IMF is pointing to overnight and, of course, that's what the Reserve Bank pointed to yesterday.

CURTIS:

But that will have an impact on economic growth, won't it?

TREASURER:

Yes, there's no doubt that it will slow economic growth, it is pushing up the price of credit both for households and for businesses. All of those things are certainly going to impact upon Australia and slow our growth, but in the middle of that we've got to keep this in perspective. Australia's got a lot going for it. It is difficult to ride out the storm, but we have got many things going for us in this difficult international environment.

CURTIS:

You've also got commodity prices falling and the Reserve Bank Governor was warning yesterday that growth in Asia is significantly moderating. Won't those factors exacerbate any slowing here?

TREASURER:

Well, certainly commodity prices are moderating but they are still at a very high level. Commodity prices, particularly for iron ore and coal, are locked in until next March. Spot prices are down, but they are still not below the contract prices that were signed earlier in the year. So, I think the longer term outlook for commodity prices is still good for Australia but certainly there will be an impact.

CURTIS:

Are you looking at revising down growth figures?

TREASURER:

We will be publishing, later in the year, our mid-year economic review. That will be the appropriate time to discuss our forecasts for the future. But as we've said, this will impact upon growth and certainly that's one of the reasons why we have this substantial easing of monetary policy by the Reserve Bank. You see the things we can control are monetary policy and fiscal policy. The Reserve Bank has acted decisively on monetary policy and the Government has been acting decisively with fiscal policy.

CURTIS:

Is this a time to cut back on spending if revenue is hit or is it a time to pump more money into the economy?

TREASURER:

I think it's a time for responsible and prudent economic management. We've already said that. We will be responding in terms of our infrastructure program. That's very important.

CURTIS:

But that will take some years to come through, won't it? Infrastructure spending doesn't change overnight?

TREASURER:

It will take some time to come through but we will put in place the appropriate fiscal settings that suit our circumstances.

CURTIS:

And does that mean a little bit more spending to get the economy moving?

TREASURER:

Well, certainly what it means is good, strong economic management. We've seen decisive action from the Reserve Bank. The Government all year has anticipated that things could turn nasty in international markets. That's why we've built up a strong surplus. That's why we've been putting in place the policy settings we have and we certainly have maximum flexibility in this environment to respond as we need to.

CURTIS:

Has the inflation genie been put back in the bottle by the global slowdown or is the inflation target now, at the moment, subservient to the need to prop up the economy?

TREASURER:

The Reserve Bank made their observation about that only yesterday. They said they expect inflation to peak around five per cent in the September quarter this year and then they expect to see inflation come down after that. It's certainly good news but that high level of inflation still puts a lot of people under financial pressure. That's why it's very important to have a disciplined and prudent fiscal policy in this environment.