Low rates helping the economy: RBA
The Reserve Bank is confident record low interest rates and a weaker Australian dollar are helping the economy, it’s just taking a little longer than usual.
RBA deputy governor Philip Lowe said the RBA’s surprise February rate cut was partly caused by economy’s sluggish response.
“This was not because things had turned for the worse, but rather because of the lack of compelling signs that economic growth was picking up as was earlier expected,” he said.
“I don’t think we’re at the point where monetary policy is not effective, we’re some way from that, which means we have some scope to lower interest rate again if that’s appropriate.”
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Dr Lowe said efforts to boost economic growth by overseas central banks have put downward pressure on their currencies and have slowed the fall in Australian dollar.
In the past seven months the Australian dollar has dropped almost 20 US cents to a low of 76 US cents in early February, but in the same period it has only had a slight fall against the yen and the euro.
One of the main factors behind the Aussie dollar’s fall against the greenback is the US Federal Reserve’s intentions to raise its interest rate.
Meanwhile, the Euro zone and Japan have no intention to raise their rates for the foreseeable future.
Before the Fed changed its tune on interest rates in 2013 the Aussie dollar stayed close to parity with the US dollar.
Dr Lowe said these overseas factors have left Australia with lower interest rates and a higher currency than would otherwise have been the case.
“We may not like this configuration, but developments abroad give us little choice,” he said.
-AAP