Former RBA head rubbishes rate cut

Adam Smith 10 May 2016

oz moneyAt least one person isn’t cheering the Reserve Bank’s decision to cut the official cash rate, and he’s a former RBA governor.

Former Reserve Bank governor Bernie Fraser has told the Australian Financial Review the RBA’s recent cash rate cut won’t bolster economic growth.

“I don’t see monetary policy as solving the problem with zero, or practically zero, interest rates or quantitative easing. It can’t get things moving,” Fraser said.

Fraser, who headed the Bank from 1989 to 1996, said he was surprised by last week’s rate decision “because of the ambiguity that such a move is likely to create in the public mind”.

“Is it really lower inflation that’s provoking the Reserve Bank, or concern about the weakness of the economy?” Fraser said.

Fraser suggested that the proper course of action was for the government - not the Reserve Bank - to provide stimulus to the economy.

"The Reserve Bank should be talking to the government and saying there is not much more we can do on monetary policy, that this is a classic situation for being more active on fiscal policy. Australia shouldn't worry too much about debt and deficit at this stage. We need some growth."

In spite of Fraser’s warnings, the AFR said speculation has mounted that the RBA will cut the cash rate lower before the year’s end, with markets pricing in another cut by October.

See which banks have passed on the May RBA cut

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