Shortly after Joe Hockey took over as the Coalition's Treasury spokesman the Comonwealth Bank inched up its standard variable mortgage rate from 5.64 per cent to 5.74 per cent, bringing it into line with NAB's.
Hockey dived in:
"The increase in interest rates by the Commonwealth Bank today is directly linked to Kevin Rudd’s debt."
I labelled what Hockey had said "bizarre garbage".
I was disappointed - indeed shaken - when his leader (who must have known better) actually backed him up:
"Doesn’t the Prime Minister accept that it is his reckless spending and debt binge which is pushing up interest rates?"
We expect and need to hear the truth from the Opposition.
We weren't getting it then.
Today at the Senate hearing the Reserve Bank Governor dealt with Hockey's contention in a way Hockey and Co. can't have enjoyed.
SENATOR JOYCE: Thank you. First of all I would like to know does the amount of Australian borrowing, Government borrowing, force up the amount of interest rates and, if so, by how much?
STEVENS: Well I take it we’re talking about the rates the Government actually pays to borrow it and…
JOYCE: And also, borrowing of the Government’s involvement in the market (inaudible) State Government and the Federal Government for hundreds of billions of dollars. How much effect is that having on interest rates in Australia or is it having any effect at all?
STEVENS: Well I don’t think it’s having a significantly large effect on the rates that they’re actually paying at their tenders. As I said earlier, the 10 year yield in Australia, I think it’s in the bottom half of the five at present. You know these rates go up and down but that’s not materially different to the sorts of rates we’ve seen on average for a decade or so.
JOYCE: So is it less than 1 per cent or more than 1 per cent.
STEVEN: I don’t think you could, I think the effects, if any, is quite small. Certainly not more than a percent, no. Much less, if anything.
JOYCE: So is there any extent of borrowings where it does have an effect? Or are just Government borrowings are irrelevant?
STEVENS: They’re not irrelevant, but this is an area where over the years in my memory at least, the studies which try to pin this down empirically find a pretty wide range of estimates and often they struggle to find much effect. You know, I think if we had very large, much larger debt burdens like 50 per cent of GDP or something, we would see a noticeable premium on Australian debt reflecting that. But I don’t really think that one can claim that there is a significant measurable impact in these yields at present. These yields presumably embody the market’s expectation of all of the things that are ahead.
JOYCE: Okay you say 50 per cent of GDP. Now Australia’s GDP is what – $1.2 trillion so we are looking at about $600 billion. Would that be a fair analysis of what you’re saying is it?
STEVENS: What I am saying Senator is that, I think, that with debt positions of 10 or 15 or 20 per cent of GDP, the likely impact of that on the premium that our Government pays over and above what other Governments would pay is likely to be pretty small. And the most likely cause of a big rise in government borrowing costs is the borrowing by other governments around the world. After all it’s a global capital market.