29 May 2023
The report ‘An RBA fit for the future’ analysed the Reserve Bank of Australia’s performance over the past 30 years and made 51 recommendations on the monetary policy framework, governance, leadership and culture of the RBA.
Some recommendations touch directly on the 3 pillars of macroeconomic policy – monetary, fiscal and macro-prudential policies – and they are:
· The RBA should have dual monetary policy objectives of price stability and full employment, with equal consideration given to each.
· The RBA should clearly explain how it is balancing its two monetary policy objectives, including how long inflation is expected to be materially away from the midpoint of the target and why, and how long labour market conditions are expected to deviate from full employment and why.
· There should be increased joint work between Treasury and the RBA on the relative roles of fiscal and monetary policy.
· There should be more formalised cooperation arrangements for financial stability policy including by the RBA providing formal advice to APRA for its use of macroprudential tools.
The Report also identified 3 episodes that highlighted the performance of the RBA. They were:
· Episode 1: Undershooting the inflation target between 2016 and 2019,
· Episode 2: Using additional monetary policy tools to respond to the COVID-19 pandemic,
· Episode 3: Overshooting the inflation target since 2021.
This forum was devoted to a discussion of the recommendations and issues raised in the Report about the monetary policy framework. Will the recommendations ensure a monetary policy framework at the RBA that is fit for the future?
The following threespeakers presented at the forum to address these questions:
- Professor Ross Garnaut, Melbourne Institute: Applied Economic & Social Research, the University of Melbourne “An Australian symphony needs the full orchestra”
- Dr Peter Tulip, Centre for Independent Studies “The mistakes of the RBA”
- Dr Stephen Anthony, Macroeconomics Advisory “Money, liquidity and credible macro policy frameworks”