As Weber (2005) has noted, virtually all economic decisions depend on the actual interest rate—that is, the nominal rate minus inflation so the actual interest rate can crash dramatically to well under zero if confidence plummets for consumers in anticipation of genuinely dire economic times.
Weber concluded that monetary authorities, namely the Reserve Bank of Australia, could impact accurate interest rates, but only in the short run. For instance, RBA can go on printing more and more notes and floating them in the economy, ultimately decreasing the interest rate for some time. Once consumer spending catches up with the level of money supply, then inflation increases, which requires higher rates of interest to contain inflation.
Dollar flotation
The dollar flotation and the removal of exchange controls undertaken in 1983 in financial deregulation by Hawke have also undermined the RBA’s independent capacity to control correct interest rates through actions outside of international economic conditions.
US’ and Australian effective interest rate synchronicity
There is a positive and significant relationship between US and Australian’s effective cash rate as illustrated by the below Tableau graph. While I am pursuing further research on the topic, you could play with the Tableau interactive below!
