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Stephen Grenville

What’s gone wrong with our interest rate policy

The RBA has been forced into lockstep with a misguided US Federal Reserve held hostage by volatile financial markets.

The current debate on Australian monetary policy is misdirected. Interest rates are abnormally low because the US Federal Reserve has pushed them down through excess liquidity and sustained quantitative easing.

All other developed countries (including Australia) have been forced to match these low rates in order to avoid a damaging loss of international competitiveness through an overvalued exchange rate. With policy already so accommodative, further easing would be as ineffective as doubling the prescribed dose of medicine.

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Stephen Grenville is a former deputy governor of the Reserve Bank of Australia and a non-resident fellow of the Lowy Institute.

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    Original URL: https://www.afr.com/policy/economy/so-what-has-gone-wrong-with-our-interest-rate-policy-20210214-p572f7