The reduction in interest rates over the past eight months or so – 125 basis points on the cash rate and something less than that, but still quite a significant fall, in the structure of intermediaries’ lending rates – will speed up, at the margin, the process of deleveraging for those who need or want to undertake it.
This more flattering view of the contribution of monetary authorities does not preclude the controversies surrounding the relationship between monetary and financial stability, a subject I will address later. In spite of the positive effects of modern finance in contributing to the development and stability of economic activity there is an increasing concern with financial stability as an objective of policy.