What now? Swan spells out his plans

The Federal government expects the Reserve Bank’s decision to keep interest rates on hold will help to sustain Australia’s economic recovery.

The Federal Treasurer, Wayne Swan, explained why, at question time shortly after Parliament resumed, for its autumn sittings.

“Today’s decision means that a families with a $300,000 mortgage are still paying around $600 a month less than they were paying 18 months ago,” Mr Swan said.

The Reserve Bank’s target rate was still 7.25 per back then. It is just 3.75 per cent now.

These rates have a big influence on home loan interest rates.

And the extra cash, now in the monthly budgets of several million young to middle aged families, packs a wallop, at suburban supermarkets and in local businesses throughout the country.

There was, of course, never any question of the Reserve Bank now returning to anything like the target rate, that it had set, back then.

At most, a rate rise of 25 – or perhaps even 50 – basis points might have been expected.

Even that, though, would have led to another round of rises in home loan interest rates.

And that would have further eroded the spending power of many Australian families.

The first three rate rises, that the Reserve Bank announced late last year, have already had that effect.

And the Reserve Bank board learnt, just three hours before it announced its decision, that business confidence slumped late last year, after the last of those three rate rises was announced.

The board’s decision, though, should be seen as a reprieve, rather than a firm declaration that Australia’s interest rates won’t rise anytime soon.

They are still well below levels the bank regards as normal.

What happens now?

The Treasurer spelt out the government’s plans as he continued his answer.

“…we are committed to a long-term strategy here,” he said.

Mr Swan said the government would do  everything it could to expand the productive capacity of the economy.

It would also do everything in its power to lessen inflationary pressures.

“We on this side of the House are determined to do everything we can to see sustainable growth which lifts living standards up and we are determined to make the necessary investments for the future,” Mr Swan said.