From AAP:
Former treasury boss Ken Henry has told business the Australian dollar is likely to remain high for the foreseeable future.
Dr Henry told the Australian Industry Group forum in Canberra it would not be prudent to bank on an early sizeable depreciation in the exchange rate.
“There is no silver bullet that is going to rapidly devalue the dollar and make things easier for Australian businesses in the immediate future,” he said.
…However, Dr Henry said Australia’s economic policy framework – which includes a floating exchange rate, the independent setting of monetary policy and competition policy – had served the nation well.
“These things have helped to protect Australia from the impact of several economic shocks emanating from overseas,” he said.
This makes no sense. The floating dollar has helped protect the Australian economy from external shocks because it has fallen when its fundamentals have weakened. The other kind of protection it has afforded is to rise during commodity booms, by preventing an inflationary breakout. But if it isn’t going to fall when that boom comes off and there is no inflation then it isn’t working as it should. Henry goes on:
“It is important that we will build on them and resist the temptation to dismantle parts of the framework, even though we may perceive from that dismantling a short term advantage.”
Contemplating a short term, well communicated and targeted strategy addressing an obvious over-valuation resulting from portfolio flows is not “dismantling” the regime. Other central banks are doing that already. Nor is there any issue with the RBA, an independent body, printing some dough and tossing is to other central banks if it so chooses. It’s in the bank’s charter to ensure that the dollar works as it should.
