The RBA, politicised conmen with a gun to the head of the Australian economy

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Mofra

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I don't think central banks can ever be truly independent of Governments, by their very nature they have to react to economic conditions caused, at least in part, by the Government(s) of the day.

I agree with Stiglitz's observations, to a point. While the underlying drivers of current inflation are specific to some sectors, the nature of those industries (e.g. fuel prices) impact almost every other sector in the economy. I just can't fathom that the RBA can do anything else other than raise rates in this environment. Yes, its going to make life more difficult, but the external inflationary impacts so absolutely no signs of slowing, so there need to be action taken to curb it where possible.
I think part of Stiglitz's point is that monetary policy isn't the only way to curb inflation, however the veneer of independence of central banks means governments aren't willing to risk political capital by using fiscal policy to do any of the heavy lifting.
 

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Gralin

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Yet in the next comment talk about the people who had "caused" the problem not fixing it. You can't have it both ways.
dude you've misunderstood
I'm saying the people that have caused the inflation are not the one's being hit by the RBA to fix it
 

Number37

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I think part of Stiglitz's point is that monetary policy isn't the only way to curb inflation, however the veneer of independence of central banks means governments aren't willing to risk political capital by using fiscal policy to do any of the heavy lifting.

Did you hear what Bernie Fraser said about Stiglitz's claim that the 2-3% band was "pulled out of thin air"?
Bernie Fraser...paraphrasing..."that's not true, sure, there wasn't any scientific basis for it, but we made an educated guess". LOL
 

hamohawk1

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There's no way Australia/ the world is getting out of this lightly IMO.

It's farcical in Australia to think that the government should even consider further handouts to counter the rising cost of everything, as it will end up just pumping back into an economy that has too much heat in it right now.

We're all paying for too much money/ stimulus being pumped into the economy during Covid. Fuel/ supply chain have some level of influence but its talked up way more than reality IMO
 

QuietB

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I think part of Stiglitz's point is that monetary policy isn't the only way to curb inflation, however the veneer of independence of central banks means governments aren't willing to risk political capital by using fiscal policy to do any of the heavy lifting.
And this is exactly what happened.

Federal governments refused to stimulate the economy circa 2015-2020 so reserve banks everywhere took interest rates to zero to hold the house of cards up.

Then CoVid happened and federal governments everywhere realised they can print as much cash as they want. And so they did.

Out of control inflation ensued. Completely unsurprisingly.

Federal banks again get to clean up the mess.

When Phillip Lowe said interest rates would not go up until 2024 he did not know the federal government were about to print $500 billion in cash, let Australians access another $100 billion in super and watch every state government in the country go on a spending spree as well.
 

TommyD13

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I don't think this is an 'either/or' situation. Yes, the primary cause of the inflation supply side issues. Staff shortages, wars etc etc. We all know what they are. But this doesn't mean that this can get in the way of the RBA normalising interest rates.

By definition, with the RBA target of 2-3% inflation over the medium/long term, (let's say 2.5% for ease) then any nominal interest rate below this level, is effectively a 'real' negative interest rate. Presently, 2.35% we still have an interest rate that is a real negative rate, even if we did not have skyrocketing inflation.

The markets suggest that the rate hikes don't stop here, and further hikes past this year are more than reasonable to expect, although they should be subject to more scrutiny than the recent increases. The recent increases themselves, supply side issues or not, are in line with an economy that is transitioning to more normal times.

The other side of the coin, fiscal policy, also has to pull its weight here. Monetary policy is a great demand brake, which it has already essentially achieved. Fiscal policy is a great supply side accelerator. You mix these two together, and we find our way out of this relatively unscathed. So the question should be what can our government do to ease the supply pressures we are experiencing. Now that is open for debate. Skills and training obviously important. Reducing COVID isolation and other requirements also important. How do we get and keep fuel prices down? Perhaps the fuel excise cut should indeed be extended. The specifics of what the government does or does not do in regard to fixing the supply side of our economy is not the premise of my point here. My point is, the central bank normalising interest rates is not stopping our government easing supply side pressures, and vice versa.

Interest rate rises are to be expected in the current environment, even if the demand side of the economy is somewhat being strangulated. That is not the RBA mandate. Their mandate is price stability, and simply put, if the Government will not fix the supply issues (not saying this is easy), this is no fault of the RBA.
 

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