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Australian dollar rising but does the RBA want it to cool?

16 September 2020

In its September minutes the Reserve Bank has suggested official interest rates would stay low for the foreseeable future, as would economic stimulus.

The Australian dollar recently hit a two-year high of just over 74 US cents at the start of the month and another interest rate cut would put downward pressure on the rising Australian dollar.

The RBA said in its monthly minutes that it will maintain ‘highly accommodative’ monetary policies to help support the nation’s flagging economy. It gave no indication that immediate further changes to monetary policy would be a part of that.

The official cash rate has remained at its record-low of 0.25 per cent since March, when it was last cut in an emergency meeting in response to the shock of the coronavirus pandemic.

Westpac chief economist Bill Evans says he thinks the RBA is willing to cut rates again if the economic recession gets worse.

“This is the first time since the major policy changes in March that the board has noted the possibility of further monetary measures,” Mr Evans told News.com.

“That could mean even more easing of the current policy stance or a new approach to policy easing.”

Mr Evans says it would be unlikely that rates would go into negative territory and a cut to 0.1 per cent was more probable.

“I do not think the RBA is even close to such a move, which would likely require intervention or negative rates,” he said.

“That debate is more likely to emerge in 2021.”

The monetary policy measures undertaken by the RBA include buying government and some large corporate bonds in an effort to inject more liquidity into the economy.

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