The 'new normal' has neutralised the RBA

Neutral interest rates are falling across the developed world, including in Australia, leaving the RBA with less room to move. If state and federal governments don’t pick up the slack a recession could be on the cards.

The zero lower bound could become the ‘new normal’ for monetary policy but even if it doesn’t our cash rate is set to be consistently lower than we have become accustomed to during the Reserve Bank of Australia’s inflation-targeting period. But if the RBA has less room to move, the onus will fall on our state and federal governments to ensure that Australia doesn’t suffer a decade of disappointment.

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