16 October 2012

Time to drop Reserve Bank interest rate

“With the CPI under 1 percent, and the economy stagnating, the Reserve Bank should be loosening monetary conditions in its announcement on Thursday,” says CTU Economist Bill Rosenberg.

Dr Rosenberg called on the Bank to reduce its Official Cash Rate from 2.5 per cent to 2.0 percent, joining other calls for its reduction.

“With the Reserve Bank’s new Policy Targets Agreement emphasising a “focus on keeping future average inflation near the 2 per cent target midpoint”, rather than somewhere in the previous 1 to 3 percent band, a significant cut would be in order. There is plenty of room for the Reserve Bank to move and be assertive in assisting the economy with inflation more than 1 percentage point below the 2 percent target focus”, Rosenberg says.

“We have a growing list of job losses, and as the Reserve Bank acknowledged in its last Monetary Policy Statement, many exporters and firms competing with imports are struggling. A drop in interest rates could help stimulate investment and be part of a strategy to bring down the exchange rate. In turn, this could stimulate more job creation – or at least slow the job losses,” Rosenberg says.

“There is much more that both the government and the Reserve Bank should be doing to actively get the economy moving and bring down the unrealistic exchange rate but Thursday is an opportunity to recognise the problems the economy and many people in it are facing,” Rosenberg concluded.

ENDS

© Scoop Media