The interventions in the currency market to weaken the Australian dollar are likely to be either ineffective or it will result in greater macroeconomic instability, the Treasury said in its latest Economic Roundup on Friday.
"Calls for Australia to shift away from its long-standing policy approach and take action directed at lowering the value of the AUD are misplaced," it said.
The best way to curb currency appreciation is through interest rate reduction, the treasury observed.
"If the high exchange rate is judged to be inconsistent with keeping the economy close to non-inflationary full employment, we could expect that monetary policy would be eased in response, putting downward pressure on the AUD," the treasury said.
Since November last year, the Reserve Bank of Australia has reduced rates by a cumulative 125 basis point. The cash rate was left unchanged at 3.5 percent in August.
by RTT Staff Writer
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