RBA criticised for ‘undershooting and overshooting’, panel reveals

Criticisms regarding the performance of the Reserve Bank have been identified as part of the wide-ranging review of the central bank.

In an update presented at a CEDA lunch on Thursday (24 November), the panel responsible for the review into the RBA said it had received criticisms regarding the central bank’s approach to implementing the monetary policy framework and communicating its decisions over recent years.

“These have focussed on periods of undershooting and overshooting the inflation target as well as the use of unconventional monetary policies,” the panel said.

The panel and the review secretariat said that they have received over 114 submissions, conducted a dozen focus groups, interviewed more than 230 people, and surveyed almost 1,100 current and former staff of the RBA as part of the review, which has now reached the halfway point after kicking off in July.

On monetary policy frameworks, the panel said it has heard “deep support for monetary policy to continue to be conducted by an independent central bank”.

“There has been general, but not universal, support for a flexible inflation targeting framework, which is seen to have contributed to strong economic outcomes over the last 30 years. Several suggestions have been put to the panel for how to specify that framework more clearly,” it said.

Regarding governance, the panel said it has heard suggestions for ways to increase the clarity of the board’s role and strengthen its accountability, as well as composition, to support effective future monetary policy decision-making.

Moreover, feedback regarding the RBA as an institution was mostly positive.

“The panel has heard that the RBA has high‑performing, collegiate staff who are dedicated to public service,” it said.

“It has received suggestions for ways that the bank’s culture could be strengthened, including to increase internal debate and openness to outside ideas”.

The review is due to be delivered to the government in March next year.

High inflation 'only temporary' - maybe

Speaking at the same event, RBA governor Philip Lowe emphasised the importance of ensuring “this episode high inflation is only temporary”, while underlying that it “might be more variable over the years ahead” and discussing the implications of this for economic policy to come.

“For most of the past decade the issue was that inflation was a bit too low, not too high. And for the couple of decades before that, inflation varied from year to year, but averaged two and a half per cent in Australia,” Mr Lowe explained.

“An inflation rate of 7 or 8 per cent was something that was widely thought to be consigned to the history books, so the current bout of high inflation has come as quite a shock.”

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