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The Reserve Bank seems to be losing its way

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Although the Reserve Bank is "playing ball" with the government, in both defending the government's slogans that "our economy is strong", and that "the fundamentals are good", and by lowering the official cash rate to historic lows, I seriously doubt that they are happy with where they have ended up.

The RBA recognises that these small further cuts in interest rates, especially from such a low level, and even if fully passed on by the banks (which they are not), will do little to stimulate consumer spending and overall economic growth, or cost and wage inflation, but more likely just further stimulate asset prices, especially house prices, and risk compounding the household debt problems.

How low can they go?: Reserve Bank of Australia Governor Philip Lowe is heading into uncharted territory after the RBA cut the official cash rate by 0.25 per cent to a new record low of 0.75 per cent this week. Picture: Tammy Law

While the desire to stimulate our economy, that is basically teetering on the brink of a recession, is undoubtedly behind the government's desire to see lower, even negative interest rates, the RBA seems to have shifted its focus from inflation to wanting to avoid too........

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