As borrowers wait on the Australian banks to announce the extent of their “pass through” of today’s 1% interest rate cut, the Prime Minister and Treasurer have commented on the Reserve Bank’s decision.
- Listen to Kevin Rudd and Wayne Swan (13m)
Transcript of joint press conference with Kevin Rudd and Wayne Swan.
PRIME MINISTER KEVIN RUDD: Today’s RBA decision comes at a crucial time in the Australian economy. In the midst of a global financial crisis, which has already seen some 25 banks around the world either fail or be bailed out, and at a time when the global financial crisis is also having a real impact on economic activity around the world.
But here in Australia, we have strong financial institutions, we have a strong Budget surplus when many Governments around the world are in deficit.
And we also continue to generate positive economic growth when most major economies in the world are generating negative economic growth.
Nonetheless, the global financial crisis has an impact on Australia as well. The Government welcomes the decisive action by the Reserve Bank of Australia, just as the Government itself has indicated its preparedness to take decisive action through the bring-forward of its $76 billion nation building agenda.
The Government welcomes the relief that the Reserve Bank of Australia’s decision will provide to working families and to Australian small businesses. At a time like this, any responsible Australian political leader will welcome this decisive action by the Reserve Bank of Australia, providing maximum relief to Australian working families and to small business and maintaining the stability of the Australian financial system.
The stability of the Australian financial system remains the cornerstone of this Government’s economic policy. This is particularly underlined at this time of global financial crisis. The Government has set a strong economic policy direction for the future to see the Australian economy through the difficult times which lie ahead. This will require tough action, tough decisions and some of those decisions will not be popular. This Government remains determined to take those decisions.
TREASURER WAYNE SWAN: Thanks very much Prime Minister. This decision is welcome. This decisive action will strengthen our economy. It will provide relief to families and to small business. And from that perspective, it underscores the underlying strength of our economy that we have more room to move than just about any country in the world when we are responding to these adverse global events. It’s a very welcome decision and it will most certainly strengthen our economy.
RUDD: Over to you folks.
SWAN: Was the full one per cent a shock to you Prime Minister?
RUDD:We welcome this decisive action by the Reserve Bank, and as I’ve indicated already, the Government itself has already demonstrated its preparedness to take decisive action by bringing forward a $76 billion nation-building agenda. These are unusual times for the global economy, brought about by the extraordinary events in global financial markets.
JOURNALIST: But were you surprised (inaudible) one per cent is huge?
RUDD:We are dealing with extraordinary economic times, extraordinary circumstances in global financial markets when some 25 banks around the world have either failed or had to have been bailed out. As a consequence, we, in this country are conscious of the need to continue to take decisive economic policy action. The Reserve Bank has done so today in relation to monetary policy. The Government has already demonstrated its preparedness to do so in terms of bringing forward the nation-building agenda. As I said before, tough decisions lie ahead and we intend to take them.
JJOURNALIST: What are some of those tough decisions?
RUDD:Well, as we’ve already indicated, the cornerstone of the Government’s policy is to ensure the continued stability of the Australian financial system and that’s caused us to make some unpopular statements in recent times.
We stand by that because what we have been concerned about first and foremost is the continued stability of the Australian financial system. And let me add this: the stability of Australia’s banks is a real, continued issue for working families, for small businesses, for everybody and that’s why every responsible politician and political leader should welcome this decisive action and should have as the cornerstone of their concerns relief for those who are borrowing money, but the continued stability of the financial system as well.
JOURNALIST: What’s your message to the banks (inaudible)?
RUDD:Our position has not changed, and that is, we believe that given the pressures which borrowers face there should be absolute maximum pass-through to working families and to small businesses. And the reason is, we want to make sure that those who are currently borrowers get relief but at the same time maintaining the stability of the Australian banking system.
I repeat again. Look around the world, look at what’s happened in recent times. More than 25 banks which have either failed or had to have been bailed out. The cornerstone of our system is the continued stability of the Australian banking system. We remain determined to underpin that through the actions the Government takes, and all political leaders should exercise responsibility in making statements relevant to that objective.
JOURNALIST: What does maximum mean though? Does that mean the full one per cent?
SWAN: Could I just add to that. The Government expects that the banks will pass on in full official rate cuts when conditions normalise. That is our bottom line. When conditions normalise, we do expect that the banks will pass on in full official rate cuts.
JOURNALIST: Has the sombre economic outlook put the inflation genie back in the bottle?
SWAN: Well, I think the Reserve Bank has spoken about its view on the course of inflation over the years ahead, and it’s good to see that they do expect it to come down in the years ahead. But the most important thing from the Government’s perspective is through fiscal policy to further strengthen our economy. To further ensure that the investment the Prime Minister was talking about before takes place so that we can continue to grow in a low inflationary environment.
JOURNALIST: How concerning is the plunge in the Australian dollar?
RUDD:Well we are in the midst of a global economy and there are a lot of factors at work at the moment in the global financial markets and as we have said repeatedly all year Australia is not immune. The actions however that we take occur in the context of Australia being in robust economic and public finance and when it comes to the banks private finance, compared with any other country or economy around the world.
Let me just go back to for example our budget circumstances, you look across the major economies of the world at the moment. Practically none of them are currently able to boast a budget surplus. Why is that important? It provides you with a buffer to take necessary actions in the future given the uncertainties that lie ahead. Look at the rest of the major economies in terms of their ability to generate positive economic growth.
Most of the major economies are generating negative economic growth. Australia, particularly when you look at its financial institutions and particularly when you look at the state of their balance sheets and how well they are regulated is in first class operating order given the extraordinary stresses and pressures which are available and presenting themselves across the global economy.
JOURNALIST: What is your message to the banks though? (inaudible) maximum and Treasury says when conditions normalise – what are you expecting the banks today to pass on?
RUDD:Well maximum pass through is the Government’s continued position. Secondly, as the Treasurer has just indicated as global financial markets stabilise over time that there will be full pass through, that is the responsible course of action here because the cornerstone is this, maintaining the stability of the Australian financial system at a time when more than 25 banks around the world have either failed or have had to be bailed out and that is a bottom line concern for every working family and every small business in this country. And it is a responsibility which the Treasurer and I take seriously and are not going to subject to casual opportunist, political comment.
JOURNALIST: (inaudible) Why won’t you guarantee all banking deposits?
RUDD:Because the Australian banking system is in first class working order the arrangements which have prevailed for a long period of time remain adequate. Furthermore based on the recommendations of the Financial Stability Forum which Australia has actively participated in for a long time we are bringing forward a financial claims scheme, that is the right course of action. That will be introduced through the Parliament before the end of the year and that has been already circulated by the Treasurer out to the corporate community. The bottom line is this though our banks are in first class working order.
The major banks represent 85% of the banking system in the country, their balance sheets are in first class working order. We have the best regulatory system in the world. Therefore we believe we have robust financial institutions going forward and it is important to be absolutely clear cut about the difference which exists between our major financial institutions and those which are currently under stress in practically every other economy around the world.
JOURNALIST: (inaudible) pass on a full one per cent cut?
RUDD:The challenge for the future is to ensure that given as you would see from the statement put out by the Reserve Bank today, that interbank lending will be tight for a period to come, that we must not look just at the current slice of time but look ahead as well. 3 month out, 6 months out, 9 months out.
Our responsibility we take seriously which is the underlying stability of the Australian financial system now and into the future. And that is why the prudent course of action is to take the advice of Australia’s financial regulators which the Government has done, underpinning the statements it’s made so far. We will not engage in populist politics on these sorts of questions. We will do that which is absolutelyright and responsible to underpin the long term stability of the Australian banking system. That is what working families, pensioners, carers, small businesses would expect of any Government of Australia, including this one.
SWAN: Can I just say it is reckless behaviour to pretend that the funding costs of banks have not gone through the roof in recent times. Absolutely reckless behaviour to pretend that those funding costs have not gone through the roof.
JOURNALIST: Treasurer, what are the pre conditions for stability in the credit market?
SWAN: Well first of all we have got to see conditions stabilise globally. That is why the package in the United States was so important. Here domestically our Reserve Bank has been very active, very active in insuring that there is sufficient liquidity in the system, which has been the subject of increased costs. That is one of the problems that we have had. The Reserve Bank has been attending to it by putting liquidity into the system and is continuing to do so.
RUDD:If you look into the future, two other factors remain completely relevant to your question. One is the wash through impact of the $700 billion package adopted most recently by the United States Congress. That is factor number one.
Factor number two is the agreement across the major economies of the world of the long term regulatory system across financial systems. The Treasurer soon will be departing to Washington for a meeting with the International Monetary Fund on this very question.
That is what will be the future rules on transparency, the future rules on capital adequacy, the future rules on prudential standards and whether all of the above, including corporate governance and reward structures for executives in financial institutions, and whether all those above will be consistent across the financial institutions of the major economies of the world.
So part of restoring global confidence to the equation is the wash through of the American package, part of it is also making sure we have a consistent, strong, transparent, regulatory system, the financial system for the future. And that is certainly on the Treasurer’s agenda when he attends the IMF board of governors meeting in Washington presently.