David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Prime Minister. Will the Prime Minister update the House on recent developments in global financial markets?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

I thank the honourable member for his question. As we have seen over recent months, there is increasing global uncertainty in financial markets. This highlights the importance of responsible economic policies and prudent management of public finances. Last night the United States Federal Reserve, acting in coordination with other central banks, announced initiatives to improve liquidity in credit markets. The Federal Reserve has initiated a new term-securities-lending facility which will provide up to $200 billion in additional funds to credit markets. The funds will be accessible by primary dealers, including major investment banks, which will be able to use a wide range of securities as collateral. That will help financial institutions manage their activities by trading relatively illiquid assets they currently hold for more-liquid assets. The extra liquidity will work in conjunction with low interest rates to assist financial markets in dealing with current challenges. The Federal Reserve’s action is a recognition that global credit market conditions are very tight. Since the onset of the subprime crisis, major banking institutions have announced around US$125 billion of subprime related write-downs, and capital positions are stretched by the need to take on a further US$120 billion of assets previously held in off-balance-sheet vehicles.

While Australia’s economy and our financial sector remain strong, the events of recent months demonstrate we are not immune from the influence and turbulence of global markets. But the government is also in close contact, through the Treasury, with our regulators, businesses and the Reserve Bank. Australia’s economic fundamentals are sound and our regulatory arrangements are the best of any in the world. However, we in Australia remain alert to the impact of global credit market conditions on the Australian economy. Credit spreads remain at elevated levels. The tightening of credit is being felt in our corporate sector through higher costs of borrowing, tighter lending standards and reduced access to credit. It is also being felt by working families with the higher mortgages which are currently offered by banks and the rates which mortgage holders have to pay.

Developments in the global economy combined with significant inflationary pressures in the domestic economy reinforce that this is the time for responsible economic policy, prudent fiscal management and prudent management of the outlays of government. The inflation challenge that we face is not something that has emerged overnight; it has been building for some time. Inflation is now running at a 16-year high and interest rates are the second highest in the developed world. Working families have now had to suffer 12 interest rate rises in a row. The combination of these domestic inflation and interest rate pressures and uncertainty arising from global financial markets is also reflected in today’s consumer sentiment survey, which has recorded a fall of 9.1 per cent in March to its lowest level since September 1993.

The government remains committed to its policies of responsible economic management, remaining mindful of developments in international financial markets, reining in unnecessary government spending and investing in long-term productive capacity. The government remains committed to building a modern Australia and national economy in these difficult times ahead both in terms of the pressures which come from the global economy and the inflation challenges at home.

Kevin Andrews (Menzies, Liberal Party) Share this | Link to this | Hansard source

Mr Speaker, on a point of order: I ask the Prime Minister to table the document he has just read word for word.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Was the Prime Minister reading from a document?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

Yes.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Was the document confidential?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

Yes.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

I call the Leader of the Opposition.