We should start the move away from monetary policy.
in America? It had a lot of money parked in US government bonds, but was wrong-footed by the US Federal Reserve’s sudden move to jack up interest rates.
It hasn’t been a problem in Australia, however, because our much more oligopolised banking system means our banks are hugely profitable and so less likely to fall over. It’s this that makes monetary policy more immediately effective – and painful – in Australia than in other economies. A reason we should start the move away from monetary policy.
As Lowe acknowledged after his speech, the continued use of monetary policy as pretty much our only means of slowing demand is threatened by another, quite different development: the slow disappearance of the world long-terminterest rate by about 3 percentage points, and so bringing them much closer to the “zero lower bound”, known to normal people as just zero.
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