SUBJECTS: Economy, interest rates, Australian dollar, banks
MARIUS BENSON:
Chris Bowen, it has been an avalanche on the markets overnight, have you ever seen a situation like this before?
CHRIS BOWEN:
Clearly we live in very turbulent times and this is a situation that we haven't seen for a very long time.
The important thing for Australians to remember during this turbulence is that we are well-armed, but we are not bullet proof.
We are just about the best placed country in the world to get through these extraordinary times in international markets.
BENSON:
Looking at those world markets at the moment, the United States government threw $700 billion into the mix, just a few days ago, to inspire confidence. There seems to be no confidence, not only in the US, but particularly in Europe overnight?
BOWEN:
We are seeing, of course, this spreading to Europe. The markets in Europe have been turbulent for some time. We have seen a worsening of that in recent days.
It underlines the point, of the twenty or so banks that are double A rated around the world four of them are here in Australia. That is a very high proportion; our fundamentals are strong. We need to keep reminding ourselves of that as we go through these very turbulent times.
BENSON:
What is the government's task in these turbulent times? Is it to stay out of the way while the Reserve Bank makes its decisions and the regulators regulate?
BOWEN:
We are in constant contact with the regulators, APRA [Australian Prudential Regulation Authority] and the Reserve Bank as well as ASIC [Australian Securities and Investments Commission]. We allow them to get on with their job at arms length, but we are on constant contact with them. We have to ensure that the fundamentals are strong, to ensure that Australian confidence recognises the differences between the Australian economy and the world economy. This is the fundamental challenge for governments and the government's economic team in these very difficult times.
BENSON:
One of the things the world seems to not feel particularly about overnight is the Australian dollar, it is only a couple of months since it was threatening parity with the US dollar now it's down around 70 cents. Is that a vote of no confidence in Australia?
BOWEN:
No, I don't think so. The Australian dollar is being affected by turbulence elsewhere. Of course a falling dollar has certain benefits for the Australian economy as well as certain costs. So there are some people who will be pleased about the decline in the Australian dollar, other people will be disappointed. These things are determined by the market on a daily basis.
BENSON:
And now there is talk also, more generally, about a world-wide recession. Is that realistic?
BOWEN:
Well, obviously, we are seeing an impact on the real economy now from this financial turbulence. Confidence around the world has plummeted and you will see that impact upon spending and you will see that impact upon growth rates. You have already had the G7 reporting negative or zero growth rates for some time.
We still have quite solid growth in Australia, but we are going to see a slowing in the real economy around the world, there is no question about that.
BENSON:
Just looking at the local scene one of the expectations is there will be a bank shake up that the big four banks are very well placed with the double A rating that you mentioned that will start swallowing up smaller lenders is that something the Government would look on with approval?
BOWEN:
There are processes to go through with any bank merger there are various government agencies which need to be convinced in the public interest the ACCC, ASIC etc. The Treasurer at the end of the day has a certain responsibility which I know he takes very seriously he wouldn't be pre-empting any decision until we've seen all the evidence on a case by case basis.
BENSON:
One of the big decisions being made today is the Reserve Banks decision on interest rates. The expectation is of a half of one percent cut but that in part is driving the Aussie dollar down?
BOWEN:
We will see what the Reserve does later in the day. There are public expectations out there, but it is a matter for the Reserve Bank at the end of the day and they will be weighing up the impacts it will have on the real economy.
BENSON:
The Opposition has criticised you for being too one sided their terms with the banks about whether they pass on the official rate cut in full. The criticism is also coming from your own backbench; Bernie Ripoll in Queensland says "every body understand the banks have made a lot of money over the past 10 years I would like to see them pass on 100% of an official rate cut."
BOWEN:
Well, I'm sure we would all like to see that but of course the government's view is that we want to see as much passed on as possible. Bernie is a very vocal advocate for his electorate and he would of course like to see one hundred percent passed on as I would for my electorate but we also have to point out the reality of the bank's funding costs.
BENSON:
Would you like to see the banks open their books to demonstrate that they do need to hang on to part of an official rate cut?
BOWEN:
Of course the bank's books are open to APRA, the Reserve Bank and the Treasury and all the advice the government has received from the various agencies is that bank funding costs have increased dramatically. When you have unanimous advice coming from all the government economic key agencies, also from the banks, it would be irresponsible for the government to ignore that.
BENSON:
Would it look better if the books were made publicly available?
BOWEN:
What the banks make available to the public is a matter for them but of course the bank's books are available to the key government agencies who have given that advice to the government.
BENSON:
Chris Bowen thank you very much
BOWEN:
Always a pleasure Marius.