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current mp stance (1 Viewer)
- Thread starter me
- Start date
well not necessarily, because yes, monetary policy could be considered expansionary, and not altering interest rates does not mean its neutral, it simply means that the RBA is continuing with its loose stance
but we'll c...i heard the US cut its interest rates, so RBA mite respond to that
but we'll c...i heard the US cut its interest rates, so RBA mite respond to that
Porphyria_J
Member
i think the interest rate currently is like 4-5, and so it isn;t hitting neutral (5.5 most text books say ) yet, but its getting there
the idea with interest rates, is perhaps you can talk about that with the impact of globalisation, it has made the RBA loose a lot of independance in its monetary policy
IE - yes there is a great deal of trouble overseas, which means the RBA should cut down its interest rates, but the problem is, that within australia, we are having quite a high inflation period with lots of stimulus from the housing boom which is only starting to go towards a downturn,
so overseas conditions say *cut* but domestic conditions say *raise*
the idea with interest rates, is perhaps you can talk about that with the impact of globalisation, it has made the RBA loose a lot of independance in its monetary policy
IE - yes there is a great deal of trouble overseas, which means the RBA should cut down its interest rates, but the problem is, that within australia, we are having quite a high inflation period with lots of stimulus from the housing boom which is only starting to go towards a downturn,
so overseas conditions say *cut* but domestic conditions say *raise*
B
Bambul
Guest
I went to hear Big Mac (Ian MacFarlane, Governor of the RBA) at the House of Reps Economics Committee Hearing earlier this year and it was there where he mentioned what neutral interest rates are.
He said (and I'm quoting from the notes I took) that it was quite "fuzzy", about was about a 3.5% real interest rate. Now it could range between 3-3.5% but some would go as low as 2.75% or as high as 4%.
He went on to say that the neutral rate was important if you were above or below it. If your at the neutral rate then it is of little use to you. ie. interest rates should gravitate to the neutral rate over the long run.
Taking the long term inflation rate as being 2.5% (ie. halfway between the RBA's 2-3% inflation target, which it has approximately been during the past 5 years or so) and neutral as being 3.25% real you get a nominal interest rate of 5.75%.
As the current interest rate is 4.75% I would expect the RBA to want to increase interest rates a further 1% (which is going to take some time due to the current downside risk to economic growth dampening pressure to raise rates).
Hope that helps!
He said (and I'm quoting from the notes I took) that it was quite "fuzzy", about was about a 3.5% real interest rate. Now it could range between 3-3.5% but some would go as low as 2.75% or as high as 4%.
He went on to say that the neutral rate was important if you were above or below it. If your at the neutral rate then it is of little use to you. ie. interest rates should gravitate to the neutral rate over the long run.
Taking the long term inflation rate as being 2.5% (ie. halfway between the RBA's 2-3% inflation target, which it has approximately been during the past 5 years or so) and neutral as being 3.25% real you get a nominal interest rate of 5.75%.
As the current interest rate is 4.75% I would expect the RBA to want to increase interest rates a further 1% (which is going to take some time due to the current downside risk to economic growth dampening pressure to raise rates).
Hope that helps!
Last edited by a moderator:
kaseita
Member
...me thinks me will avoid this part in me essays
(I understand it...I just don't like seeing something so speculative...don't think I'll be trying to predict the future anytime soon - for that thing anyway)
(I understand it...I just don't like seeing something so speculative...don't think I'll be trying to predict the future anytime soon - for that thing anyway
)