ANALYSIS: The drumbeats of discontent with the central bank, driven in part by high household debt and rising rates, have prompted both sides of politics to support a review.
The review of the Reserve Bank of Australia marks an important attempt to rethink what is the role of a central bank in the post-deregulation era.
Once this elaborate apparatus was finally undone in the mid-1980s, monetary targeting lapsed, replaced by a checklist of macroeconomic variables. Bizarrely, this included the current account.Australia’s inflation rate remained intractably high, resulting in a push, led by then shadow treasurer John Hewson, to target inflation, as British had begun to do. Others argued GDP or employment were better targets.
As asset prices, most notably housing, moved upwards, the bank came under further criticism as it publicly sought to lift the cash rate to tap off surging household debt levels. The drumbeats of discontent with the central bank had begun before the latest U-turn, prompting both sides of politics to support a review. The reviewand includes consideration of the bank’s mandate, which was established in the late 1950s when it was spun out from the then government-owned Commonwealth Bank.
Poor productivity growth has long been the Achilles heel of the Australian economy and there are many who would like to see the central bank also lean into this challenge.
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