RBA Assistant Governor explains balancing act
(27 February 2013 – Australia) The Reserve Bank of Australia (RBA) has scope to cut interest rates to offset the effect of the high Australian dollar if it is absolutely necessary.
RBA Assistant Governor Guy Debelle told the University of Adelaide Business School that the central bank had been able to counter the effects of the high value of the Australian dollar on the economy by cutting the cash rate.
And, he said, the RBA could further cut the cash rate, currently at 3.0 percent, if the high dollar continued to have a negative impact.
‘‘To date in Australia, we have been able to counter the effects of the higher Australian dollar with lower interest rates,’’ he said.
‘‘We still, obviously, retain scope to lower interest rates further, should the need arise, including to counterbalance the pressures of an elevated exchange rate.’’
However, Debelle warned that cutting interest rates too far could also create problems for the economy - forcing up the price of assets and causing people to borrow more than they could afford.
‘‘It can generate excess credit expansion or asset price inflation or imbalances elsewhere in the economy,’’ he said. ‘‘The current experience of Canada, Hong Kong and Switzerland is salient in this respect.’’
Debelle also said the RBA’s rate cuts over the past two years had less of an impact on mortgage rates than in the past, due to higher bank funding costs.
And, he said, the RBA could further cut the cash rate, currently at 3.0 percent, if the high dollar continued to have a negative impact.
‘‘To date in Australia, we have been able to counter the effects of the higher Australian dollar with lower interest rates,’’ he said.
‘‘We still, obviously, retain scope to lower interest rates further, should the need arise, including to counterbalance the pressures of an elevated exchange rate.’’
However, Debelle warned that cutting interest rates too far could also create problems for the economy - forcing up the price of assets and causing people to borrow more than they could afford.
‘‘It can generate excess credit expansion or asset price inflation or imbalances elsewhere in the economy,’’ he said. ‘‘The current experience of Canada, Hong Kong and Switzerland is salient in this respect.’’
Debelle also said the RBA’s rate cuts over the past two years had less of an impact on mortgage rates than in the past, due to higher bank funding costs.
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