Australian Treasurer Joe Hockey didn’t mince words in Parliament yesterday in answering a Dorothy Dixer from Nationals MP Kevin Hogan on the state of the global economy.
Hockey said there are many headwinds at the moment but “none that Australia cannot meet the challenge of.”
But it was his comments on monetary policy which have attracted the most interest. Hockey said that:
The fundamental challenge now for the global economy is when loose monetary policy has done its work and unfortunately made the rich richer through rising asset values but loose monetary policy has effectively been exhausted as a lever to stimulate economic growth on a global basis.
Clearly, Hockey is speaking in a global context, but his comment fits neatly as an explanation to why the Reserve Bank appears in no hurry to ease monetary policy in Australia.
When only a narrow section of the economy – in Australia’s case, house prices – are benefiting from lower rates then monetary policy has lost its effectiveness as a tool for broad economic stimulus.
We’ll hear from the RBA again on Melbourne Cup Day, but even with a slowing economy there is little prospect of a rate cut.