“Australia’s exchange rate is “uncomfortably high” and business confidence subdued, breaking with past experience during interest-rate reductions, Reserve Bank Deputy Governor Philip Lowe said.
“Countries that are in relatively good shape and have not seen large-scale expansion of the central bank balance sheet are experiencing stronger currencies than those that are in relatively poor shape,” Lowe said in a speech yesterday in Sydney. “In response to this, interest rates are lower than they otherwise would be to offset some of the effects of an uncomfortably high exchange rate.”
Lowe highlighted a split between Australian households, where data have “picked up somewhat” in response to 1.75 percentage points of rate cuts in the past 14 months, and businesses, where confidence and conditions have not. “This difference will obviously bear close watching over the period ahead,” he said.”
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