According to the article, "MLC Asset Management economist Bob Cunneen said that given the Reserve Bank's forward guidance that interest rates won't rise above 0.1 per cent for the next three years or so, it has exhausted the conventional interest rate response to currency pressure." (a) In this case, Cunneen thinks that the RBA wants to reduce the value of the Australian dollar. (b) If the RBA wanted to reduce the value of the Australian dollar, it would need to increase Australian interest rates. (c) If the RBA's strategy was to increase the value of the Australian dollar, it would have taken steps to cause less capital to flow into Australian financial markets. (d) A strategy of reducing the value of the Australian dollar via conventional monetary policy would be more difficult, if interest rates overseas were to rise. (e) Were the RBA to want the value of the Australian dollar to be higher, they would need the demand curve for the Australian dollar in the FX market to shift to the right (f) Were the RBA to want the value of the Australian dollar to be lower, they would need the supply curve for the Australian dollar in the FX market to shift to the left (g) If the RBA were to raise Australian interest rates while interest rates overseas were falling, this would cause a depreciation ✓of the Australian dollar.
According to the article, "MLC Asset Management economist Bob Cunneen said that given the Reserve Bank's forward guidance that interest rates won't rise above 0.1 per cent for the next three years or so, it has exhausted the conventional interest rate response to currency pressure." (a) In this case, Cunneen thinks that the RBA wants to reduce the value of the Australian dollar. (b) If the RBA wanted to reduce the value of the Australian dollar, it would need to increase Australian interest rates. (c) If the RBA's strategy was to increase the value of the Australian dollar, it would have taken steps to cause less capital to flow into Australian financial markets. (d) A strategy of reducing the value of the Australian dollar via conventional monetary policy would be more difficult, if interest rates overseas were to rise. (e) Were the RBA to want the value of the Australian dollar to be higher, they would need the demand curve for the Australian dollar in the FX market to shift to the right (f) Were the RBA to want the value of the Australian dollar to be lower, they would need the supply curve for the Australian dollar in the FX market to shift to the left (g) If the RBA were to raise Australian interest rates while interest rates overseas were falling, this would cause a depreciation ✓of the Australian dollar.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:us)
According to the article, "MLC Asset Management economist Bob Cunneen said that given the
Reserve Bank's forward guidance that interest rates won't rise above 0.1 per cent for the next three
years or so, it has exhausted the conventional interest rate response to currency pressure."
(a) In this case, Cunneen thinks that the RBA wants to
reduce
the value of
the Australian dollar.
(b) If the RBA wanted to reduce the value of the Australian dollar, it would need to
increase
Australian interest rates.
(c) If the RBA's strategy was to increase the value of the Australian dollar, it would have taken steps
to cause
less
capital to flow into Australian financial markets.
(d) A strategy of reducing the value of the Australian dollar via conventional monetary policy would
be more
difficult, if interest rates overseas were to rise.
(e) Were the RBA to want the value of the Australian dollar to be higher, they would need the
demand curve for the Australian dollar in the FX market to shift to the right
(f) Were the RBA to want the value of the Australian dollar to be lower, they would need the supply
curve for the Australian dollar in the FX market to shift to the left
(g) If the RBA were to raise Australian interest rates while interest rates overseas were falling, this
would cause
a depreciation
of the Australian dollar.
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