The Reserve Bank is not about to start intervening on the foreign exchange market to force the Australian dollar down and spur economic activity.
Central bank governor Philp Lowe also told parliament’s economics committee in Canberra he won’t talk down or start “jawboning” the currency lower.
“Trying to manipulate the exchange rate for short-term macro benefits is not a successful strategy most of the time,” Dr Lowe said on Friday.
Deputy chair of the committee and Labor MP Andrew Leigh reminded the governor of his previous analysis where a five per cent depreciation in the currency would see the unemployment fall significantly faster to 4.5 per cent by the end of 2021.
It would also bring inflation back in the two to three per cent target band within the next two years.
“Sounds like a win-win to me,” Dr Leigh said.
But Dr Lowe said talking the currency down does not have a lasting impact.
“It would be kind of newsworthy on the day and the currency would come down, but two days later the fundamentals reassert themselves,” he said.
He said the Reserve Bank’s foreign exchange intervention strategy is well understood.
“We only intervene in the market when it’s clear there is market dysfunction… or the exchange rate is a long way from fundamentals and that is hurting the economy,” Dr Lowe said.
He said at the moment the markets are working well and liquidity is fine.