Australia Opposition Urges Review of RBA, Fiscal-Monetary Policy

Australia’s opposition Labor party is calling for a review of Reserve Bank objectives and fiscal and monetary policy’s joint responsibilities in response to economic weakness ahead of last year’s recession.

“The lion’s share of the blame for years of weak wages, insecure work and flatlining business investment belongs to the Morrison government and its economic mismanagement,” Shadow Treasurer Jim Chalmers said Wednesday. “But that doesn’t mean we shouldn’t review the RBA’s goals and levers and the interaction of fiscal and monetary policy.”

Chalmers initially proposed the critique in a Sydney Morning Herald report on the nation’s central bank and its inability to achieve its inflation target in recent years. The RBA has so far managed to avoid a review, unlike international counterparts.

“It’s a crucial institution but not beyond criticism or reproach,” Chalmers said.

Like its global peers, Governor Philip Lowe and his colleagues are under increased scrutiny with interest rates at the effective lower bound and the bank commencing a quantitative easing program.

In contrast with the strict inflation goals of many other central banks, the RBA has a three-pronged mandate:

  • Price stability, with a goal of keeping inflation in a 2-3% range over time
  • The maintenance of full employment; and
  • The economic prosperity and welfare of the people of Australia

Lowe is under fire over a record rate holding pattern that began shortly before he took the helm in 2016. The bank would go on to hold the cash rate at 1.5% for almost three years through to June 2019, when it resumed easing.

Lowe’s justification was that in 2016-17 house prices were rocketing and household debt soaring. The governor was concerned that, given global disinflationary forces, further easing would only exacerbate potential financial instability without producing much inflation.

The governor acknowledged at the time that some people disagreed with this view, including members of his own staff.

The RBA resumed cutting rates in 2019 as growth slowed and inflation cooled. In response to the pandemic, it has lowered the cash rate to 0.10%, introduced a yield target and undertaken quantitative easing among other measures.

Lowe has previously told a parliamentary panel that RBA officials weren’t “inflation nutters.”

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