The RBA plays a dangerous game with its dollar bet

By Callam Pickering

The outlook for the Australian economy remains unchanged since August’s Statement on Monetary Policy (The big question mark hanging over the RBA’s outlook, August 8), so I won’t bore you with that discussion again; instead, Stevens had some curious comments to make on confidence, monetary policy and the rebalancing of the Australian economy.

Stevens appears to be putting a lot of faith in ‘animal spirits’, noting that confidence is something that monetary policy can’t directly cause and greater confidence is needed to encourage greater investment.

Low interest rates continue to support the Australian economy, particularly housing construction, but the biggest effect of accommodative policy thus far has been to bid up asset prices, particularly in the housing sector.

If mining investment collapses before the dollar has fallen sufficiently, the non-mining sector will be in no position to fill the gap and rebalance the Australian economy.

Read more here: Business Spectator

    

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