What if each Australian capital had its own Reserve Bank?

Adam Smith 6 December 2016 NEWS

question mark peopleWhile the official cash rate may be at a record low, the story would be very different if Aussie capital cities had their own central banks.

A study by SGS Economics and Planning has revealed Sydney and Melbourne are driving a disproportionate amount of the country’s GDP growth, Business Insider has reported. The study found the two cities are responsible for a combined 67% of Australia’s GDP growth, with Sydney accounting for 38.6% and Melbourne accounting for 28.6%.

With the two cities’ economies remaining buoyant, SGS Economics posited that should each capital city have its own central bank setting an official cash rate, the two cities would have cash rates considerably above the RBA’s official cash rate of 1.50%.

“In this hypothetical situation, the highest interest rates in the major capital cities would have been in Sydney, with the Reserve Bank of Sydney increasing rates to 3.75%,” the company said in its report.

Melbourne, meanwhile, would have a cash rate of 2.25%, while the Northern Territory would have a 3.50% cash rate. The ACT’s hypothetical cash rate would match the RBA’s current 1.50%, the group said.

“With the exception of the Northern Territory and Canberra, the rest of the country would have rates of between 0.25% and 0.5%,” the report claimed.

SGS Economics and Planning said the thought experiment served to highlight “how divergent Australia’s regions have become in terms of their economic growth”.

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