(1 November 2012 – Australia) Reserve Bank of Australia (RBA) deputy governor Philip Lowe said the effects of interest-rate cuts were showing signs of boosting demand – as looser monetary policy abroad keeps the nation’s currency elevated.’Lower-than-average interest rates are providing some support to demand in the economy,’ Dr Lowe said in a speech in Sydney on Tuesday night.
‘There is also some sign that they have led to a slight improvement in the property market, although there has been little change in the appetite for debt.’
Lowe focused his prepared remarks on costs and benefits that quantitative easing by major economies have on currencies and interest rates in nations such as South Korea and Canada where growth remains healthy.
The United States Federal Reserve, European Central Bank and Bank of England have expanded their balance sheets since 2008 to try to resuscitate growth, and the Bank of Japan this week boosted its asset-purchase program for the second time in two months.
The Australian dollar has risen 52 percent in the past four years, the best performer among 16 major currencies, as investors sought exposure to the raw materials powering China’s economic boom.
The main reason for the strength is ‘the large shift in the relative price of commodities,’ Lowe said.
The currency’s strength has ‘helped us navigate our way through a once-in-a-century investment boom,’ Lowe said.
The effects of appreciation fuelled by quantitative easing ‘can be countered with more stimulatory domestic policy setting – including through lower interest rates – than would otherwise have been the case,’ he said.