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Fed govt needs stimulus exit plan Fielding says, after RBA

News Clippings AAP, September 28 2009

The federal government needs to have an exit plan for its economic stimulus spending to ensure Australians are not subject to sharp interest rate rises, Family First Senator Steve Fielding says.

Reserve Bank of Australia (RBA) governor Glenn Stevens was on Monday questioned by a Senate Economics References Committee about whether the better-than-expected state of the Australian economy presented a case to withdraw some of the government’s stimulus.

“Whether there’s a case for the government to have in their top drawer a kind of a plan B that seeks to wind this back faster, there might be,” Mr Stevens told the committee.

“How feasible that might be I can’t really answer.”

Committee member Senator Fielding later said Mr Steven’s comments supported a view that the government needed a plan to wind back its stimulus.

“If you actually keep spending then it will put pressure on interest rates and therefore the real concern for mums and dads is interest rates may go up faster than needed,” he told AAP.

“So I think this committee will have to grapple with this question, and its the key question of do we need to keep the economy running positively with spending, versus how much is needed that may also drive up interest rates.”

Mr Stevens reiterated the RBA will at some point raise official interest rates from the current 49 year low of three per cent, but gave no clear indication of when that might occur.

“What interest rates should do is respond to the outlook for the economy and inflation in a timely fashion,” he said.

“Whether that turns out to mean that they start to rise before unemployment stops rising remains to be seen.”