Rate speculation rises again as dollar falls

With the Aussie Dollar again under pressure – and under US$0.60 – there is once more talk in some quarters of interest rates being used as a support mechanism for the currency.

When this speculation last occurred in June the Reserve Bank clearly stated, in action as well as words, that this was not the answer to the dollar’s woes. We cannot see how the situation would have changed this time around.

Increasing interest rates to support the currency would not fix the problem of the Yen or the Japanese economy which is causing the weakness in the first place.

More importantly, an increase in rates would damage the overall economy just at the time it needed support. A lower A$ is generally positive for exports, but especially so when we need to be as competitive as we can on the World stage.

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