Dad’s Army to the rescue on Australian dollar

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Dad’s Army has arrived with its too-late-the-hero theatrics to save us from the rampant Australian dollar. Alan Kohler opines today on the long monetary hold:

This extraordinary state of affairs rather belies the tranquil commentary in the Reserve Bank’s monetary policy statements, including yesterday’s. In fact the monthly bleat about the exchange rate after every meeting is beginning to look a little pathetic, not to mention disingenuous.

The RBA has deliberately arranged a carry trade that is holding the exchange rate at US94c (and it even tipped above US95c overnight), and is whining about it at the same time. If it were serious about “balanced growth”, as it says it is, then it would have kept cutting rates till the exchange rate fell.

OK, good. But the argument goes on:

…US economist Larry Summers argued last year that the world may be entering an era of “secular stagnation”, because central banks can no longer respond to downturns by cutting rates (since they are already at zero, except in carry trade heaven — Australia).

…And what can the Reserve Bank of Australia do about all this? Nothing.

So what is it Allan, a deliberately engineered carry trade or the impost of other central banks? Yes, the context is driving up the dollar but the RBA does not want it that way. It’s simply too stubborn to change its spots and do the very obvious – which Kohler also overlooks – installing macroprudential tools to control credit so that it can cut interest rates and close the carry. It’s being deployed absolutely everywhere else, including very comparable economies in NZ, Canada and the UK.

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Robert Gottliebsen is marginally better:

…at some point — whether it is at US95 cents, parity or even higher — the Reserve Bank and the government is going to have to recognise we are in a currency war and take evasive action to protect the employment of our people.

…My guess is that for the moment, the Reserve Bank and the government will sit pat and hope for a miracle. But a miracle does not look likely. At some point, the Australian government and the Reserve Bank will have to decide that enough is enough and give the Reserve Bank the scope to lower interest rates and not create a property bubble. The politics will not be easy.

But again, why no mention of macroprudential? People listen to these titans of commentary and I’ve seen them use that power to dismember very good policies. Yet, here they are, pretending to care about the Australian dollar while deploying a smoke screen of incoherence for the RBA.

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Their own economics commentator, Callam Pickering, is arguing consistently for macroprudential. Get behind him for Christ’s sake!

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.