by Chris Becker

Picture a central banker viewing the various statistics that indicate the economy is slowing down, who then grabs their interest rate lever and gives it a big pull. His response:

Maybe, but maybe not, Captain Glenn. This is not podracing!

The RBA is the latest or laziest – depending on your point of view – of central bankers to work out that pulling a single lever and mouthing off some soothing language to accelerate a slowing ship doesn’t work in a post-GFC global economy. The waters are much different now.

The latest rate cut by the RBA has had almost no effect in terms of bringing the bloated Australian dollar down against its contemporaries, since Megabank (the big 4 banking cartel) kept most of the cut to keep their obscene profits secure.

The Australian dollar remains at a near month high since the rate cut, at a little over 76 cents against the USD, slowly coming back to the average price it held all of last year, and yearly highs against the Euro and Pound with only the Yen holding.

More from Bloomberg:

The Australian dollar, a “significant source of uncertainty” for the central bank, remains the strongest major developed currency this quarter, while stocks and bonds have fallen. With Glenn Stevens about to enter his final month as governor and the cash rate at a record-low 1.5 percent, the RBA’s actions are having less impact than they once did, a problem that’s plaguing many of central bankers around the world.

The RBA is aiming to drag the country out of a disinflationary spiral, yet it’s predicting consumer price gains will remain below its targeted range after it eased…

We once thought 2% OCR was a floor, but as the rest of the developed world struggles with disinflation (careful using the “D” word), and maintains lower or even negative rates the floor keeps getting lower for the RBA.

You see, the RBA is caught in a kind of interest rate “arms race” whereby it has to follow the lead of the bigger central banks.

That is, if Australia maintains an interest rate differential that is too high relative to other nations, then it will very likely lead to a ‘flight to yield’ whereby global investors pile into Australian assets. This extra capital inflow could cause the Australian dollar to appreciate against other currencies (other things equal), damaging the competitiveness of trade exposed sectors.

The problem is that without some fiscal help from the Federal Government to provide real stimulus for the economy, the RBA is running out of “conventional” options, just as the East Coast housing bubble reaches its late stages and the mining economy hand-off wobbles through incompetent State government stewardship.

RBA fires blanks as Aussie dollar soars