LAUNCESTON – Some people love conspiracy theories and the latest is that the Australian central bank is deliberately weakening its currency to save the country’s big iron ore miners.
That’s the opinion of Lourenco Goncalves, chief executive of U.S.-based iron ore and coal miner Cliffs Natural Resources but, like virtually all such theories, it fails the test of logic and credibility.
Goncalves argues that the Reserve Bank of Australia (RBA) has manipulated its currency to help his much bigger rivals, the Anglo-Australian pair of Rio Tinto and BHP Billiton.
In comments made on Tuesday, the same day Australia’s benchmark rate was cut by 25 basis points to a historical low of 2.25 percent, the outspoken CEO said the RBA was “taking no prisoners” with the Australian dollar.
“They want to help BHP, they want to help Rio Tinto, they want to help that lady over there, Gina whatever,” Goncalves said, a reference to Australia’s richest person, Gina Rinehart, whose company is due to start up the 55 million tonne a year Roy Hill mine in Western Australia later this year.
“They are going to continue to help Fortescue Metals Group and they will believe that they will always crush Chinese producers. Big mistake, but it is what it is,” Goncalves was reported as saying by the Sydney Morning Herald.
The comments have attracted a lot of attention in Australia.
As with all good conspiracy theories, there is an element of truth to them, in so far as the RBA has made it clear for more than a year that it believes the Australian dollar is overvalued, especially in the light of the sharp fall in commodity prices in the second half of last year.
But the suggestion that the interest rate cut was designed to help specific companies is laughable and betrays a complete lack of understanding as to how the RBA operates.
The RBA’s main function is to control inflation while keeping employment at an optimal level for economic growth.
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