Low cash rate does not mean an emergency SYDNEY - The cash rate is now below where it was during the global financial crisis, but that doesn't mean it's at an "emergency" level. Back in 2008 and 2009, when the Reserve Bank of Australia (RBA) cut the cash rate from 7.25 per cent to 3.0 per cent in just eight months, the economy faced an emergency. The world's financial markets were in chaos and the world was heading into a recession. Some economies are yet to emerge from the slump which has left a residue of high unemployment across the developed world. Australia's cash rate, currently at 2.5 per cent, is lower now than it was then. But there is more to policy than interest rates. When the RBA assesses what it calls "monetary conditions" it looks at whether the exchange rate is high and restricting growth or low and boosting growth. And it's not just an afterthought. The exchange rate matters. A lot. During that final hectic quarter of 2008, the Aussie dollar could buy 67 US cents on average. Investors rightly judged that the Australian economy was in the firing line and they bailed out of it in droves. But now, even despite a fall of more than 10 per cent since the start of the year, the Aussie can still buy around 90 US cents. The foreign exchange market sure isn't behaving as if there's an emergency - it's voted Australia as one of the best and safest places to park your money. The downside of that vote of confidence is that the resulting high exchange rate has gone a long way to blunting the stimulatory effect of low interest rats. And then there's fiscal policy - the effect of the budget on the economy. In 2012/13, the financial year just ended, spending by governments in Australia fell in real terms. The national accounts go back over half a century and that was the first such a contraction on record. The latest budget statement from the government predicts a rise this year, but it will not fully offset the fall that came before it. So, there will still be a contractionary effect spread over two years - another first for fiscal policy. Among all this, the economy is not doing too badly. Five years ago, it was looking down the barrel of the recession that so many economies failed to avoid. This year, though, the big problem is that the economy is "growing a bit below trend," as the RBA put it on Tuesday, and needs a bit of a push along. The cash rate is lower than it otherwise might be in this situation because the second arm of monetary policy - the exchange rate - isn't working and because fiscal policy is working in the opposite direction. But there's no emergency.