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The Forum > Article Comments > The RBA's self-destructive policies > Comments

The RBA's self-destructive policies : Comments

By James Cumes, published 14/3/2005

James Cumes argues by increasing interest rates, the Reserve bank of Australia demonstrates it has learnt nothing from the mistakes of the past.

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This latest interest rate increase seems to have been driven to a large extent by concerns about the decline in house affordability. Ironic that they should then increase interest rates.

James Cumes has hit the nail smack on the head with this article.

Fighting inflation requires either an increase in demand for our currency or a decrease in its supply. That is the only way to combat a decline in the value of any market good. And inflation is nothing more than a decline in the value of money.

Higher interest rates will slow economic output. This will decrease domestic demand for our currency as turnover slows. Deliberately "moderating" economic growth is folly. Increased growth in the domestic economy is the biggest source of new demand for our currency. Economic Growth is anti-inflationary.

Interest rates are the price of credit. If the RBA has any meaningful job it should be to regulate the price of money not the price of credit. We should be floating interest rates and fixing the value of the aussie dollar
Posted by Terje, Thursday, 24 March 2005 7:11:14 AM
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