Wednesday, November 13, 2013

High dollar frustration

Reserve Bank should intervene to push down the Australian dollar

Tim Colebatch continues his argument that the ongoing problem for the Australian economy is the high Australian dollar, and it deserves Reserve Bank intervention.

I had thought that the Abbott government would reap the benefit (under false pretences) of an Australian dollar which appeared to be heading down to a permanently lower rate.  But it keeps hovering around the mid 90's, which is not good enough.  As Colebatch argues:
The high dollar cannot last forever. But there is a limit to how long companies can go on losing money while waiting for the dollar to fall. We are allowing a temporary over-valuation to shut down economic capacity permanently. This is not how the successful Asian economies operate.
I find this a very convincing take on the matter.

4 comments:

nottrampis said...

What is the RBA going to do?

There are a plethora of Central Banks around the world who have attempted to try and 'manage' the currency and failed.

Steve said...

Did you read to the end of the article? He has a couple of suggestions.

(I have no idea about their downside, though, and you can enlighten me on that, perhaps.)

nottrampis said...

Actually a central bank taking on the market rarely works.

Printing money to achieve a depreciation is very radical and I would advocate that ONLY when you have a liquidity trap.

Imagine you print money and this causes the economy to rocket then the RBA has to take it all back because of inflationary fears.

John said...

Could it be inevitable the dollar will stay high because Australia's economy is so strong investors feel it is a safe haven? Or is it because they are making money trading on the currency volatility while other currencies are more stable?