Ian Macfarlane, who headed the Reserve Bank of Australia (RBA) through the Asian Financial Crisis of the late 1990s and the Dot.Com crash of the early 2000s, believes the present situation is “most perplexing” and the central bank is placing too much faith in expectations that interest rate cuts can stimulate the economy.
“Too much faith is being placed in the expectation that monetary policy can do things that it can’t do,” Mr. Macfarlane told The Weekend Australian newspaper on Saturday.
“It’s done everything it can do. Once interest rates are negligible, further cuts would seem to have very little power to do anything useful.”
The RBA has delivered three 25 basis point rate cuts this year and is widely expected to do more in the near future.
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