From the AFR:
There is a solution to the Reserve Bank of Australia’s current conundrum: stealthy currency intervention, which would restore much needed balance to its policy mix. For those worried we would be joining the “currency wars”, don’t be daft — we’re already an active combatant.
Almost every cut since the RBA started this easing cycle in November 2011 has been rationalised by citing the overvalued exchange rate, which is an assessment that remains a prominent part of its post-meeting statements.
The RBA is now running an extremely dangerous experiment with highly unconventional monetary policy in the form of the lowest cash rates and borrowing costs in history. It beggars belief, but 10-year Australian government bond yields are lower than they were during the 1930s depression, when we did have serious deflation.
Unfortunately this is wrong. Monetary policy is NOT experimental at all. If it were we’d be tightening macroprudential tools like there’s no tomorrow.
The problem is the RBA is using conventional tools for an unconventional problem. As I said last year, Glenn Stevens is like the Kafka’s cockroach, horrified by the economist he was yet appalled by the economist he must become. The entire economy is now held hostage to this paralysis.
For sure, sell AUD, even print it to do so, tighten MP, use capital controls, do all of them, but first, find a bloody plan.
