“The RBA’s monetary policy is now effectively impotent.” Michael Pascoe SMH
We are now a low inflation country in a low inflation world.
The cash rate being cut to 1.5 per cent, or down to 1 per cent or 0.5 per cent can’t and won’t change that. Consumers have become pretty much immune to softer policy. No business is being stimulated to hire an extra worker or buy a new machine because rates are 25 points lower than the previously already-low level.
Which is part of the reason Glenn Stevens used his last speech as RBA governor to effectively tell the federal government to pull its finger out and start governing for the benefit of the nation, to borrow more to invest in infrastructure and to stop borrowing to pay wages and pensions.
Stevens was clearer than he has been before about the problems inherent in cutting interest rates further, but there was actually nothing new in the core advice, his plea to our political masters. The RBA has been offering it publicly for two years now and probably for longer behind closed doors.
See the full article by Michael Pascoe here: SMH Article