Inflation Target Remains Flexible But Goal Is 2.5%

The Statement on the Conduct of Monetary Policy was released today. For the first time it was an agreement between the Treasurer and the RBA Board rather than just the Governor. The new agreement contains the recommendations from the RBA review with the goal now the mid-point of the 2-3% inflation target band. There are concerns that this will require further rate hikes, as current RBA projections have inflation still at 2.9% by end-2025.

• In today’s announcement Treasurer Chalmers tried to reassure that the target remains flexible and all outcomes within the band are considered consistent with target. But “the Reserve Bank Board sets monetary policy such that inflation is expected to return to the midpoint of the target.” The time frame will depend on “economic circumstances” though.
• Full employment is part of the monetary policy goals as well as achieving the inflation target but there needs to be a “balance”. There was speculation that they must have “equal consideration”.
• Full employment has been defined for the first time as “the current maximum level of employment that is consistent with low and stable inflation”.
• The RBA will need to communicate how long it expects inflation or employment to deviate from the goals.
• The anonymous vote will now be published. The Governor will hold a press conference after each meeting and other Board members will need to make at least one speech or public appearance each year.
• The statement reiterated the central bank’s independence.
• There is a section on the monetary tools available which allows for “other monetary tools”. There will be an official review every 5 years of the “monetary policy framework and tools”.
• See Statement on the Conduct of Monetary Policy here.