Introduction
Thank you for the opportunity to speak at this Bloomberg event today. I'd like to address some issues about how monetary policy decisions taken elsewhere influence interest rates here in Australia.
Australia is a small open economy that is influenced by developments in the rest of the world. Financial conditions here can be affected by changes in monetary policy settings elsewhere, most particularly in the United States given its importance for global capital markets. However, Australia retains a substantial degree of monetary policy autonomy by virtue of its floating exchange rate. In other words, a change in policy rates elsewhere need not mechanically feed through to Australian interest rates. While Australian banks raise significant amounts of funding in offshore markets, they are able to insulate themselves - and by extension Australian borrowers - from changes in interest rates in other jurisdictions.