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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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza