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The interest rate cut that wasn't
If financial markets are any guide, the Reserve Bank is set to reduce official interest rates to some of the lowest levels since the early 1960s. But that does not mean that monetary policy is very easy. The nominal official cash rate actually tells us very little about the effective stance of monetary policy. The interest rate that matters is the real, or inflation-adjusted interest rate. In real terms, the official cash rate is not especially low relative to historical experience. Recent cuts in official rates have simply kept pace with a moderating rate of inflation to keep the real interest rate broadly steady. ... (full story)
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