LETTER: The delusion of monetary policy
Economic growth is ultimately driven by supply and demand
There is absolutely no evidence that monetary policy can contain inflation, protect the currency and stimulate economic growth. This is the single biggest delusion in economic science. (Reserve Bank must face up to its responsibility of supporting the real economy, April 2).
Simple statistical analysis shows that changes in interest rates cannot explain changes in the inflation rate and exchange rate, or economic growth. Price levels in the economy and the exchange rate are determined by all the local and international economic and political factors that have an influence on the supply and demand for goods and services and the currency, respectively. Monetary policy does not even consider changes in the demand in the economy when interest rates are adjusted. Economic growth is today driven and created all over the world by the profit motive in a capitalist economic system, and the influence of interest rates is negligibly small. Profits are determined first by changes in the p...
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