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Interest rates: the lost years

September 30th, 2004

I was just watching the Liberal scare ad on interest rates and it struck me that there was a gap in the history between Whitlam and Hawke. What was happening in those eight years?

Suddenly, like a bad memory recovered in therapy, it came back to me. I was paying 13 per cent interest on my mortgage, and the Treasurer was a little guy with big eyebrows. What was his name? Can someone remember? Will this Reserve Bank graph job jog any memories?


UpdateCommenter Peter Martin points to this series on the 90-day cash rate (Excel file) At the kind suggestion of commenter “George”, I’ve made a graph of this series, which goes from the Gorton government to the present day. 90day

The all-time record for high interest rates (23 per cent) goes to the “short sharp squeeze” under the Whitlam government, but Howard, as Treasurer, managed a creditable second place with 21.4 per cent in April 1982.

The peak for Hawke-Keating was 18 per cent under in 1989, but by 1993, interest rates had already fallen back to historically low levels. The oft-repeated claim of Howard-Costello to have lowered interest rates shows up here as completely spurious. A more accurate statement of their achievement would be “preserving the low interest rates we inherited”.

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  1. September 29th, 2004 at 21:24 | #1

    Was “job any memories” a freudian slip?

    Wasn’t it also a time of huge unemployment?

  2. September 29th, 2004 at 21:27 | #2

    Dear Pr. Q,

    Why don’t you put away your fancy graphs and just look at the facts? The facts are that interest rates are always higher under Labor governments, and Mr Howard has asserted as much, many times over.

    You should also be aware that economists are not the are best people for assessing and understanding, so any fact-like things you present can’t count.

    Kind Regards,

  3. John Quiggin
    September 29th, 2004 at 21:28 | #3

    It was indeed a Freudian slip. I must pay my therapist more. Unemployment rate was double-digit IIRC

  4. Steve Edwards
    September 29th, 2004 at 22:04 | #4

    Given that this ridiculous election campaign is being fought over interest rates, the ALP could do worse than appeal to the Whitlam glory days when real interest rates were negative.

  5. September 29th, 2004 at 22:36 | #5

    Those figures only show the half of it. For the real picture look at the overnight cash rate which provides a more accurate picture of what would have happened under Howard the treasurer if the Reserve was independent during the 70s/80s

  6. Fyodor
    September 30th, 2004 at 08:53 | #6


    That was uncharacteristically cheeky of you…nice one!

    To be fair to the Rodent, the high interest rates under his watch as treasurer were due in no small part to economic (mis)management under Whitlam, just as the fall in interest rates under his watch as PM were due in large part to economic reforms under Hawke-Keating.

    On the other hand, it’s also worth noting that Howard had nominal control of interest rates when he was treasurer, whereas he’s had precious little control of interest rates as PM, due to the transfer of monetary control to the RBA. On balance, his track record on interest rates is decisively negative.

    Leaving history aside, it’s now clear which candidate is offering the more inflationary fiscal policy, and therefore which candidate will trigger faster and larger interest rate hikes from the RBA.

    Let’s face facts, Johnny: it’s you.

  7. September 30th, 2004 at 11:33 | #7

    beautifully done John.

    I was surprised to see that interest rates actually fell markedly during Paul Keating’s leadership. The ads would have you believe that the 17% spike was all his doing.

    I am not an economist, so perhaps I can ask the group a question. To what extent is the rise of interest rates in the late 1980s attributible to the global economy – which at that stage was in the depths of recession? I understand interest rates were even higher in the US at the time. So if the rise in interest rates was a global pheonomenon – can the ALP really be accused of economic mismanagement?

  8. Peter Martin
    September 30th, 2004 at 12:59 | #8

    Daily Flute alludes to this.

    For what it is worth, the 90-day cash rate is the nearest thing to the cash rate for which the Reserve Bank publishes statistics going back that far.

    This is it:


    It peaked at a bit over 18 per cent under Keating as PM in 1989.

    It hit about the same level, actually climbing in one month to 21.39 pc, under Fraser as PM and Howard as Treasurer in 1982.

    The reason this didn’t flow through to mortgages under Howard in 1992 was that mortgages were capped (remember the cap) at 13.5 per cent.

    The Hawke/Keating government removed the cap, for all the right deregulatory reasons some time later.

  9. September 30th, 2004 at 14:16 | #9

    Howard’s talk of interest rates is only part of the story. I remember people squeezed out of business by the Credit Squeezes. Does anyone even think of a shortage of credit these days?

  10. George
    September 30th, 2004 at 16:02 | #10

    Interesting how the graph leaves out the recent Howard-Costello years, as well as the Menzies years. Quiggin distorts, we decide.

  11. John Quiggin
    September 30th, 2004 at 16:10 | #11

    Incisive as ever, George.

    As most readers would be aware, including the Howard-Costello years would only strengthen the point, since the graph has been essentially flat since they got in, contrary to their regular claims to have been responsible for low interest rates. In fact, now that you suggest it, I’ll look for a graph that covers the full period.

    The 90-day rate series I linked to goes back as far as Gorton (mostly about 6 per cent).

  12. September 30th, 2004 at 16:22 | #12


    To include Menzies would be drawing a bit of a long bow as economic circumstances were far different. You might as well go back to Barton for all the sense you could derive. If Howard likes to stick to his 30 year rule for looking back, why should John Q do anything else? As for looking at the Howard government’s figures, I thought everyone knew that the downward trend started by Keating continued.

  13. John Quiggin
    September 30th, 2004 at 16:43 | #13

    I’ve now graphed 1969-2004, using the 90-day cash rate, which appears to be the longest available series.

    George, you might want to help further by advising on rates under Chifley and Curtin – I don’t have any info on this.

  14. Mark Upcher
    September 30th, 2004 at 17:56 | #14

    While the 90 day cash rate may be the longest series, it is not the rate that affects the average punter, because very few would be borrowing at this rate. The variable home loan rate gives a better idea as it reflects the cost of borrowing for housing, which is the major item in a household’s budget.

    Also, a single sharp spike will have less impact on borrowing costs than a sustained increase in the cash rate (ie. area under the curve over a given time period has more relevance than height at a single point).

    However, the reason that Howard continues to have traction on this issue is because of the jump in 1995 seen in both charts. Given the experience in the late 1980s, this relatively modest increase caused people to panic about the possibility that home loan rates were going to shoot back to the high teens, enabled Howard to make his “five minutes of sunshine” speech and put paid to Labor’s credibility with the public on economic management (already severely damaged by the failure to deliver the L-A-W tax cuts and the attempted hike in indirect taxes in the 1993 budget).

    If Labor does not win, it will reflect a continued legacy from Keating’s final term of office.

  15. George
    October 1st, 2004 at 00:00 | #15

    I get results! That’s a nice looking time series.

    “Preserving the low interest rates that we inherited” has a nice ring to it.

    Maybe someone should use it as a campaign slogan.

    I seem to recall seeing something quite similar to that plastered all over my TV in the last few days whenever John Howard appears.

    I think it said something like “Keeping interest rates low.”

    That’s pretty close to “Preserving the low interest rates that we inherited.”

  16. John Quiggin
    October 1st, 2004 at 08:22 | #16

    Close enough, just omitting the crucial bit that would undermine their case. To paraphrase “They distort, we decide”.

  17. Homer Paxton
    October 1st, 2004 at 10:50 | #17

    housing rates were regulated in 1982/3 but weren’t in 1989/90.

    If we unregulate them and assume a very conservative 3% margin then housing rates would have been 24% under Howard at best without any regulations!

  18. October 2nd, 2004 at 14:59 | #18

    I wonder to what extent interest rates have “come down”? Is it a complete myth? Perhaps I should correct that a little: have they just bounced around a little, sometimes moving up, sometimes down, but essentially have they just compensated for the continuing inflation in the economy that is not compensated in other ways?
    Inflation has never been “cured” or “managed” or “controlled”. It is still there right now, just as it was in Whitlam’s day or Fraser’s or Keating’s.
    All that has happened is that inflation was shifted from rises in domestic consumer prices to balance of trade/payments deficits. I don’t see that those deficits are much smaller, by most calculations, than they ever were. I think they’re running at something like 2 billion a month right now. That may be somewhat “better” as a percentage of GDP than they were at the worst of times in the past; but the difference is probably pretty marginal.
    This was accompanied by a fall in the value of the A$ of course. Whitlam actually APPRECIATED the dollar in December 1972. Remember that? It’s been on the slide most of the time since – not all the time, especially vis a vis the US$, since the US$ has been on the slide too for most of the time, for much the same reasons as the A$.
    Do you remember when the A$ was valued, in European currencies, at about three or four times what it is today?
    Of course, the dollar would have fallen further if some kind souls hadn’t been willing to finance that deficit. Just as with the US$ remember.
    How long that financing will last we don’t know. It’s gone on for a long, long time. Will it ever stop? Has the US$ dollar finally begun its catastrophic slide? Could be. We’ll need to watch carefully in the next weeks, possibly months; but somehow the US$ has managed to avoid catastrophe – if that’s the word – so far. Perhaps it will suffer only a “managed” slide again.
    But, if it doesn’t, what will happen to the A$?
    What is the A$ really worth? What has the inflation rate really been all these years? How tough will the final reckoning be?
    Talking to a very perceptive European economist the other day, I asked him what the solution was. He said he didn’t have any responsibility for telling us the solution. He hadn’t caused the problem. His responsibility was only to identify that problem; it was for others – those responsible for the problem – to come up with a solution.
    Will you absolve me too from any responsibility, having told you what the problem is?

  19. Bard of Bagotville
    October 4th, 2004 at 10:52 | #19

    Wow I have only just found this thread. I looked at the RBA site independently over the week-end so I would like to offer my own analysis. Note – the RBA site only give figures back to 1969 for most stats.
    If you look at the daily figures for the 90 day cash rate the top twenty-one days in history all belong to Tresurer Howard!

    Also, I looked at the start and end dates of each Government to see how the 90 cash rates changed:
    Dec ’72 Whitlam elected (4.45%)
    Nov ’75 Whitlam sacked, Frazer elected (8.05%) an increase of 3.6%.
    Mar ’83 Fraser defeated by Hawke (15.26%) an increase of 7.21% under Howard.
    Mar ’96 Howard defeats Keating (7.53%) a decrease of 7.73% under Keating.

    When I first heard Howard say ‘interest rates always go up under Labor’ I thought he was just scare-mongering. I didn’t realise it was just another lie.

    Even if you go back to Home Loan rates (capped until the late 80s) the trends are similar.
    Dec ’72 Whitlam elected (7.00%)
    Nov ’75 Whitlam sacked, Frazer elected (10.38%) an increase of 3.38% under Whitlam/Crean.
    Mar ’83 Fraser defeated by Hawke (12.5%) an increase of 2.12% under Howard.
    Mar ’96 Howard defeats Keating (10.5%) a decrease of 2.00% under Keating.

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