Australia has launched the first major review of its central bank in decades after the Reserve Bank of Australia was criticized for delaying rate hikes as inflation was rife, prompting its governor to describe its forecast as “embarrassing”.
The review, initiated by Treasurer Jim Chalmers, could result in the RBA’s first major restructuring since the 1990s. It will take into account the bank’s performance, the composition of its board and its inflation targeting strategy.
As Australia’s economy weathered the pandemic, the RBA was widely criticized for keeping the policy rate – the metric used to define interest rates – at historic lows despite other countries raising lending rates to curb inflation.
The RBA was forced to make a small rate hike in May during Australia’s election campaign and nearly six months after the Reserve Bank of New Zealand when inflation hit 5 percent. Since then, it has hiked rates twice, abandoning the dovish stance it had maintained well into 2022.
After the RBA indicated it expected to keep rates as low as possible through 2024, central bank governor Philip Lowe said in May that its forecast was “embarrassing”.
“We should better forecast that. We don’t have that,” he said.
In a speech on Wednesday, Lowe welcomed the government’s review and said it was possible to bring inflation back into the 2 to 3 percent target range while keeping the economy on “same track”.
Belinda Allen, senior economist at the Commonwealth Bank, said: “Unlike other central banks, which require a recession to bring down inflation, the RBA remains committed to raising interest rates but still supporting economic growth (albeit moderately). and allow for low unemployment. ”