Treasurer, RBA reveal conduct of monetary policy statement

Federal Treasurer Jim Chalmers, along with the Reserve Bank of Australia (RBA) governor Michele Bullock and the RBA board, has released the statement on the conduct of monetary policy.

The statement outlined the objectives of monetary policy in Australia along with stressing the importance of the RBA maintaining its independence from the government.

In a release on Friday (8 December), Mr Chalmers said the statement was a result of “careful consideration and extensive consultation with the RBA, the Reserve Bank Board, and Treasury” that looks to meet recommendations of the RBA Review by providing details about the RBA’s inflation and employment goals.

Mr Chalmers stated: “This is part of the Albanese government’s commitment to ensuring Australia’s central bank remains world-class with a monetary policy framework fit to meet current and future economic challenges.

“Our shared understanding around strengthening decision making, accountability, and transparency in monetary policy decisions is also outlined in the statement. This includes a commitment to maintain high standards of governance to support decision making and public trust”.

Regarding the government’s relationship with the RBA, the statement asserted: “The governor, deputy governor, and Reserve Bank Board are afforded independence under the Reserve Bank Act 1959 (the Act) to conduct the monetary and banking policies of the Reserve Bank to achieve the objectives as set out in the Act.

“The government supports and will continue to uphold the Reserve Bank’s independence. For its part, the Reserve Bank Board will serve the best interests of the people of Australia with honesty and integrity.”

Despite the recognition of independence, the statement also outlined that the RBA and government would be committed to “working together to enhance their understanding of prevailing macro-economic conditions and the impact that monetary and fiscal policy settings have in influencing these conditions”.

In the statement, the two parties also agreed that the “goal of economic prosperity and welfare of the Australian people is an overarching objective for monetary policy” and also asserted that “an appropriate goal is consumer price inflation (CPI) between 2 and 3 per cent”.

The government and the RBA also reviewed the latter’s objective concerning achieving full employment, agreeing that the RBA’s role would be “to focus on achieving sustained full employment, which is the current maximum level of employment that is consistent with low and stable inflation”.

The qualifier of it being “that is consistent with low and stable inflation” is the key difference from the agreement that “the government’s objective is sustained and inclusive full employment where everyone who wants a job can find one without searching for too long”.

Both the RBA and the government also acknowledged that while the RBA’s primary approach to enforcing monetary policy would be through varying the level of the cash rate target, the board will also, in different circumstances, look to use “other monetary tools” if they may help it achieve its objectives for the monetary policy.

Mr Chalmers concluded: “This work is part of the Albanese government’s broader efforts to reform, renew, and refocus the nation’s key economic institutions.”

[Related: Christmas comes early: RBA holds]