RBA may take measures to deal with high dollar

The Reserve Bank has warned it may have to cut interest rates in order to ‘counterbalance the pressures’ of the strong Australian dollar according to a senior official at the RBA.

However, the RBA shed doubt on whether it would intervene in a ‘somewhat’ overvalued dollar by selling the currency, and would instead look at other responses. The central bank also warned that cutting interest rates too far could also create problems for the economy- forcing up the prices of assets and generating excess credit expansion.

Guy Debelle the RBA’s assistant governor noted that the RBA’s interest rate cuts had less of an impact on mortgage rates over the years, due to higher banking costs such as competitive pressures in the deposit market.