Welcome to Dr Lincoln's blog

Welcome for visiting my blog. Hope you enjoy the visit and always welcome back again. Have a nice day!


RBA can further improve Australian welfare

Thus reflects an anomaly with the Australian money markets or at least in the effectiveness of RBA monetary policy.
The RBA should do what the Fed has been doing recently, that is, to allow at least the four major banks to borrow from it with their high quality mortgage backed securities to make the RBA interest rate a really market rate that banks can borrow.
This may include a revised definition of deposits of banking institutions with the RBA, that is, the reserve ratio to facilitate this, but still retain effective control and effectiveness of monetary policy. So how high quality mortgage backed security is accounted in such new definition may need some thinking.
RBA officials need to consider this move to improve the Australian money market in terms of effectiveness. Arguably, Australian real effective interest rates can be lowered and hence welfare can be enhanced. This can be reasoned from the borrowing costs (the interest paid for borrowing at the international markets be our banks for example) that could be paid to the RBA so would be part of gain by Australians!
RBA should reflect why it has not done this earlier.

No comments:

Post a Comment