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Australian Markets Weekly: assessing monetary policy
The Reserve Bank has exhausted conventional monetary policy, with the cash rate at a record low of 0.25%, and implemented several unconventional measures, such that the real exchange rate is now down 5.5% from the end of 2019. The lower cash rate would ordinarily boost growth by 0.6pp over the next year and a half, but this has been partly offset by a further fall in the neutral rate (the lower neutral rate mainly reflects a wider spread between lending rates and the cash rate). Moreover, this stimulus may be partly unwound as the real cash rate rises over the next year or so given actual/expected inflation usually ... (full story)