Major changes to the Reserve Bank Act introduce a second board for interest rate setting, reflecting a hidden struggle over Australia's economic future. This comes amid a flurry of legislative activity that contrasts with earlier political setbacks.
The politics of the RBA's independence means a struggle over Australia's economic outlook is being fought in the shadowsThe politics of the RBA's independence means a struggle over Australia's economic outlook is being fought in the shadowsMajor changes to the Reserve Bank Act mean that, amongst other things, the bank will now have a second board solely responsible for setting interest rates.
The steering of 31 bills through the Senate on Thursday made all that a distant memory. The spinners were out early to say this was all part of a cunning plan weeks in the making.There are new laws for supermarkets, housing developers, victims of sexual violence, the Reserve Bank and many more, after the government ticked off dozens of items on its to-do list in a single night.
Before we get to the labour market though, let's consider some various factors which might lead the casual observer to think that interest rates just maybe should be heading lower. A high NAIRU number suggests conditions in the labour market will continue to generate inflationary numbers even when unemployment is high or rising.
The RBA's estimate of the NAIRU is that it sits at 4.5 per cent or higher. Treasury's estimate is 4.25 per cent, while Borland puts it at 4 per cent and the ANZ at 3.75 per cent. Overall, the data suggests "that the economy can run a lower level of unemployment that is consistent with inflation sustainably within the RBA's 2-3 per cent target band".
The CBA pointedly says that "the policy setting process cannot be forward looking if the board is on a predetermined path to wait for more than one 'good' quarterly CPI before being willing to commence the process of normalising the cash rate. Inflation is a lagging indicator, notwithstanding too the publication lag given the quarterly frequency".
The difference in assessments is pretty crucial to how the RBA sees the world, and what it may do at its December and February meetings.
RESERVE BANK OF AUSTRALIA INDEPENDENCE ECONOMIC OUTLOOK LEGISLATION POLITICS
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