Gone! Cornered by the aftermath of a great global recession, the 23-year fad of inflation targeting looks to be well and truly done in Australia.
The Australian's and the
Financial Review's previews this morning are in unison on the essence of the reform to be unveiled in a few hours, with RBA governor Phillip Lowe scheduled to speak in Sydney at a charity fundraiser on Inflation Targeting and Economic Welfare.
Monetary policy in many places has long since morphed into a framework supporting the social justice imperative and ever-stretched levels of social spending that are the hallmark of modern economies and democratic sensibilities. Lowe and the RBA board and the mandarins in Treasury are now catching up.
The simplified mission of the central bank is about "the welfare of the people" Lowe may well say today, an RBA governor for once quoting from the mandate laid down by the Australian Parliament in 1959.
Over to Adam Creighton, economics editor of The Australian
for one taster of Lowe's speech.
"Today could be the beginning of the end for the nation's 23-year-old inflation target, prompting a big jump in the dollar around lunch time. It might only be a 10 per cent chance, but it's one that's going to build regardless," Creighton writes.
"Philip Lowe was due to talk about Recent Developments in Australian and Global Economies in Sydney. But the title recently changed to Inflation Targeting and Economic Welfare.
"In a period where inflation targeting has become under attack for compelling central banks to cut interest rates come what may, it might be more than a flight of intellectual fancy."
Pamela Williams at the AFR reports that the treasurer, Josh Frydenberg, "is assessing the key monetary policy agreement between the federal government and the Reserve Bank before signing this pivotal document, which for more than two decades has framed central bank decisions on whether interest rates should go up or down."
In a long read of the history of inflation targeting, Williams concludes that "for the RBA and many other central banks, the problem is that monetary policy had fired almost every shot it had. The existence of the RBA's target meant that, sooner or later, it would be obliged to cut interest rates to get inflation back up into target.
"But such an extended period of cheap money risked destabilising the economy and inflating asset prices in share markets and housing."
She found room for some old-school Keynesian context to the rate targeting ruckus.
Bernie Fraser, who held Lowe's job in the 1990s, told the AFR he disagrees with those who propose getting rid of the target.
"The target, he argues is not important - rather, the problem facing the central bank is what the target signifies, an imbalance, with insufficient demand," Williams wrote.