A top Australian central banker on Thursday said low interest rates were proving less effective in spurring economic activity than in the past, in part because extraordinary easy policies globally were keeping the local dollar high. Philip Lowe, Deputy Governor of Australia’s Reserve Bank, emphasised that monetary policy was still playing an important role in supporting activity, which was why the bank cut rates to a record low of 2.25 percent in February.
However, changing attitudes to debt and savings, a global trend to slower wages growth and the wave of easing by other major central banks was “complicating” the RBA’s task. “The scale of global monetary stimulus means that our exchange rate remains relatively high given the state of our overall economy,” Lowe told an economic conference organised by Goldman Sachs.
“The end result here is that global developments have left us with a higher exchange rate and lower interest rates than would otherwise have been the case,” he added. “We may not like this configuration, but developments abroad give us little choice.” The RBA skipped on a chance at further easing at its March policy this week, but financial markets are still wagering it will cut again, likely in May.
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