Banks Less Reserved Than The Guv'nor

Sydney Morning Herald

Saturday April 5, 2008

Jessica Irvine Economics Correspondent with AAP

ON THE day that two banks raised their interest rates, the Governor of the Reserve Bank, Glenn Stevens, says he cannot promise rates will not rise again.

Appearing before a federal parliamentary committee hearing in Sydney yesterday, Mr Stevens said speculation of an interest rate cut was premature. "I can't even promise really that they might not rise again. But I think for the time being that [a cash rate of 7.25 per cent] is the right number."

The Commonwealth Bank raised its variable rate 0.12 percentage points to 9.44 per cent, while Suncorp raised its rate to 9.37 per cent.

In a sign that the bank's rates medicine is working, Mr Stevens said the bank was likely to lower its forecasts for inflation and growth in the years ahead.

"There is a problem; a response is needed," he said. "It is being made, and it will work."

As the Rudd Government continues work on its first budget - touted as inflation-busting - Mr Stevens played down the importance of budget policy, saying interest rates remained the main tool for cooling inflation.

"I'll be happy to see any support from fiscal policy we can get but I think we have to be realistic," he said. "When all is said and done, controlling inflation is mainly the central bank's job."

On Labor's $31 billion in tax cuts, Mr Stevens said he remained agnostic. There was a case "even to raise taxes if you are really serious" to help cool demand. But there was also a case for delivering tax cuts.

It was a schoolgirl who elicited from the governor what MPs could not yesterday. "Recession? I don't think we are going to have one any time soon," Mr Stevens said in an answer to a year 12 economics student, Caroline Nguyen, at the end of the three-hour session.

Ross Gittins - Page 46

© 2008 Sydney Morning Herald

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