G'day all Christian said "There is now a realisation that lifting interest rates in response to a higher $A has extremely adverse effects, as Grant alluded to."
This has seemed like the wrong or one sided strategy to me to, the idea of combatting too much money (credit) in the hands of consumers (and a strong dollar) by raising interest rates. What needs to be done to my uneducated mind is to simply reduce the amount of money (credit) in the system. Higher interest rates obviously part of the answer and will discourage some borrowing, people may even pay down some debt or loose their house etc. But it seems the banks won't tighten lending criteria until the ship hits the sand. Its a borrowing frenzy at the moment, here in SA our own gse has alls sorts of loans for people who can't afford them. One advertised recently is for earners of a degree LOL. I guess in a free market there is less opportunity for the govt to control the amount of money issued by banks? The rba makes a few scary statements about rates, property etc but thats about it (other than eventual rate adjustments of course) So how can the amount of money/credit be controlled, besides rates? cheers Rod
