Low Interest Rates Might Not Be the Answer For Australia

On Wednesday, the governor of the Reserve bank, Glenn Stevens, appeared before the House of Representatives economics standing committee and suggested monetary policy has done as much as it can to stimulate the economy.

Despite rising unemployment and lower than expected economic growth over the next year, Stevens believes lower interest rates are not the answer. He also effectively ruled out introducing any limits on bank lending which might encourage greater lending to businesses and enable rates to be cut without further heating up the housing market.

There has been a live experiment into the efficacy of monetary policy over two and half years. During the GFC, a large government’s stimulus package to boost the economy didn’t deter the RBA from cutting interest rates further – it cut by 425 basis points over just eight months from 7.25% to 3%.

Since November 2011 the RBA has again cut rates by 225 basis points from 4.75% to 2.5% during a time when the government showed little intention to help carry the load of stimulating the economy.

via The Guardian

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