RBA needs to cut cash rate to 1.25% as GFC still lingers: Steve Keen

The RBA needs to drastically cut interest rates to weaken the Australian dollar and help non-mining sectors of the economy recover, says economist and property bear Steve Keen. 

He also says more efforts need to be made to reduce debt levels in Australia and other countries, warning the global financial crisis never ended and would continue - on and off- for the next 20 years.

Keen says the RBA should have cut the cash rate yesterday at its June meeting as part of a process of reducing the cash rate by 150 basis points over the coming year. 

This would leave Australia with a cash rate of 1.25% more in line with monetary policy settings of its first-world counterparts like the US (0.25%) UK (0.5%) and Canada (1%). 

“We've run a high interest rate policy when the rest of the OECD has been at zero for four years,” Keen tells Property Observer. 

“That I believe is the main reason our dollar has stayed so high, crucifying manufacturing in the process. 

“I'm saying the RBA should surrender to the other central banks and run the same level,” he says.

Keen, contends that the “GFC has never ended”. 

“It was caused by excessive private debt globally, and ours has remained high (though lower than the US). 

However, he points out that the US has reduced its national debt by a sixth relative to GDP in the last four years while Australian household debt to income remains elevated at around 150% compared with around 50% in the early 1990s. 

“This crisis will roll on-again, off-again for two decades, unless we directly reduce private debt by write offs and the like, and there's no sign of that being considered by governments,” he says. 

Keen made these comments from Venice while currently on a global lecture tour. 

He will next fly to Boston to present a specialist seminar on money at Harvard Law School.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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