Fed: RBA boss to be grilled on currency swaps

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Fed: RBA boss to be grilled on currency swaps

By Jim Hanna, Economics Correspondent

CANBERRA, April 9 AAP - Labor MPs would quiz Reserve Bank of Australia Governor IanMacfarlane about advice he gave the government on its risky currency swaps, an oppositionfrontbencher said today.

Mr Macfarlane is set to appear before the House of Representatives Economics Committeein Sydney on May 31, his first appearance before the committee in 12 months.

Ordinarily, Mr Macfarlane is questioned about interest rate policy and the generaldirection of the economy.

But Labor's assistant treasury spokesman Mark Latham said opposition MPs wanted tohear Mr Macfarlane's version of events, especially his advice to relax a 15 per cent benchmarklimiting how much debt could be converted into foreign currencies.

Mr Macfarlane said he advised Treasury against a mechanical application of the limitin October and December 2000 when the Australian dollar was falling.

"We just want to find out more of the detail, his exchanges with the government, whythese decisions were made and made so late on the scene," Mr Latham told AAP.

"He might have had some earlier involvement; the end of 2000 wasn't the first timethe currency was under pressure."

"It was a five year debacle rather than something that just happened at the end of 2000."

The government has been under attack after $4.8 billion in paper losses were revealedsince 1997/98 in a risky currency swaps program designed to take advantage of lower USinterest rates.

The strategy, largely favourable since beginning in 1989, grew riskier as the Australiandollar slumped below 80 US cents in December 1996.

Mr Macfarlane was also expected to clarify comments made last week that interest rateswere on the way up.

"We'll be looking for information about the size and timing of future interest rateincreases ... given the international economic situation is still far from clear," committeechairman David Hawker told AAP.

The Reserve Bank of Australia (RBA) lowered its official cash rate to 4.25 per centin December last year, but Mr Macfarlane said it would rise to a more normal level overthe next 12 months.

"We'd like to ask him about what he sees as normal," Mr Hawker said.

Economists expect the RBA board to lift rates at its May meeting.

Mr Latham said low interest rates were under threat because underlying inflation hadrisen to 3.1 per cent.

"It's been a long, long while in this country since inflation has edged outside theReserve Bank's (target) band of two to three per cent."

The committee would also question Mr Macfarlane on the RBA's draft recommendationsto reform credit card fees.

Last December, the RBA released the findings of a two-year inquiry into the $3 billionindustry, suggesting businesses be allowed to levy a surcharge on customers paying bycredit to recover the extra processing costs.

"I would like to see more transparency," Mr Hawker said.

"Why does somebody paying in cash have to subsidise somebody paying by credit?"

AAP jph/ldj/sb

KEYWORD: ECONOMY NIGHTLEAD