Australia’s opposition Labor Party called for a review of the Reserve Bank’s goals and shared fiscal and monetary policy responsibilities in response to economic weakness ahead of last year’s recession.
“The lion’s share of the blame over years of weak payroll, unsafe jobs and flat business investment belongs to the Morrison government and economic mismanagement,” Shadow Treasurer Jim Chalmers said Wednesday. “But that doesn’t mean we shouldn’t review the goals and levers of the RBA and the fiscal and monetary policy interactions.”
Chalmers originally put forward the critique in a Sydney Morning Herald Report on the country’s central bank and its inability to meet inflation targets in recent years. The RBA has so far managed to avoid reviews, unlike international partners.
“This is an important institution but does not go beyond criticism or reproach,” said Chalmers.
Like his global counterparts, Governor Philip Lowe and his colleagues are under increasing scrutiny with interest rates at effective lower bounds and the bank is embarking on a quantitative easing program.
In contrast to the strict inflation targets of many other central banks, the RBA has a a three-pronged mandate:
- Price stability, with the aim of keeping inflation in the range of 2-3% from time to time
- Full job maintenance; and
- Economic prosperity and well-being of the Australian people
Lowe is under criticism over a record rate holding pattern that began shortly before he took over the leadership in 2016. The bank will keep cash rates at 1.5% for nearly three years until June 2019, when the bank continues easing.
Lowe’s rationale is that in 2016-17 house prices skyrocketed and household debt soared. The governor is concerned that, given the strength of global disinflation, further easing will only exacerbate potential financial instability without generating much inflation.
The governor at the time acknowledged that several people disagreed with this view, including members of his own staff.
The RBA continues cutting interest rates in 2019 as growth slows and inflation eases. In response to the pandemic, it has lowered interest rates to 0.10%, introduced yield targets and undertaken quantitative easing among other measures.
Lowe previously told a parliamentary panel that RBA officials were not “inflation mad”.