Howard rebuts RBA concerns over economic imbalance

The Prime Minister, John Howard, said yesterday that a warning that families are becoming financially over-extended was “needlessly negative”. Mr Howard was directly challenging one of the reasons cited by the Reserve Bank for its interest rate increase this week. In its statement outlining the official cash rate lift to 4.5 per cent, the RBA cited emerging inflationary pressures and concern about booming house prices, which it claims have also been associated with a rapid expansion in household debt. It said that this process carries long-term risks if households become seriously over-extended.

Mr Howard stated that the Australian economy is very well balanced, and that the Government encourages people to buy their own homes. We've provided them with a climate that has produced very low interest rates, given them a very effective home buyers' grant and the housing industry has also been given a marvellous shot in the arm, he said.

Mr Howard's comments followed earlier remarks by the Treasurer, Peter Costello, who stated that rising asset prices are a counter-balance to increased household debt.