Amongst the several factors which render monetary policy impotent as a means for manipulating the economy through centralised playing with the levers, the forces which drove the RB of Australia to drop interest rates remind us of yet another.
When global times are tough and almost all central banks drop interest rates, a country which holds its rates suddenly finds itself running – through no choice of its own other than the choice not to follow suite – a tight monetary policy.
This is precisely where Australia and New Zealand find themselves, whether they like it or not, as other monetary authorities slide down through zero into quantitative easing.
While it is true in a technical sense that the decision to retain present settings is indeed a policy stance, the resulting relative position is one at least partially “forced” by external circumstances.
Central banks then are not masters of their own destiny regardless of their governance arrangements.