Interesting remarks from Phil Lowe:
"[T]he final observation is more directly about the link between monetary policy and the exchange rate. It has been argued in some quarters that Australia’s high interest rates by current world standards have put upward pressure on the exchange rate, and thus have added to the pressures being experienced in some industries. Some who have argued this see part of the solution as being a material easing of monetary policy.
The difficulty with this argument is that, at least on the evidence to date, something like the current combination of exchange rates and interest rates appears to be what is needed to maintain overall macroeconomic stability. The high exchange rate and the high interest rates relative to the rest of the world are both being driven by the fact that Australia is a major beneficiary of the change in world relative prices. They are both playing an important role in preserving overall macroeconomic stability, something which has proved very difficult to achieve in previous resources booms, which typically ended in a bout of serious inflation with significant costs to the community."
