Erratic Aussie dollar a factor in the RBA’s missed inflation targets
Over the past decade, the central bank’s policy choices have led to exchange rate levels that have made the inflation challenges of the day harder, not easier.
The Reserve Bank of Australia undershot its inflation target in the 2010s. In the 2020s, it has presided over a breakout of inflation to the high side of the target. The missing link that helps explain both phases of policy underperformance is the level of the Australian dollar relative to the price of exports.
When I began my career at BHP roughly nine years ago, the iron ore price was about $US60 per tonne and the Australian dollar was about US80¢. When I left BHP a few months ago, the iron ore price was around $US100 and the AUD was below US70¢. There is clearly something odd about that pair of observations. The price of Australia’s largest export increased by two-thirds and the exchange rate went … down?
Loading...
Huw McKay is a visiting fellow at the Crawford School of Public Policy at The Australian National University.
