Goldman Sachs Group Inc. economists said an independent review of Australia’s central bank has “hawkish implications” for monetary policy because of tweaks to the inflation targeting framework.
(Bloomberg) — Goldman Sachs Group Inc. economists said an independent review of Australia’s central bank has “hawkish implications” for monetary policy because of tweaks to the inflation targeting framework.
While the review recommended keeping the Reserve Bank’s 2-3% inflation target, it removed the current vague “over time” caveat and instead focused on the 2.5% mid-point of the goal. The report also said the RBA’s full employment objective should be given equal weight to containing inflation.
RBA Review Calls for Expert Policy Panel, Fewer Meetings
“Together, we view these changes as prioritizing a more precise inflation target over an implicitly shorter, albeit still unspecific, period of time,” economists led by Andrew Boak said in a research note.
“The clearer, and implicitly nearer-term, prioritization of the RBA’s inflation/employment targets are likely to have incrementally hawkish implications for monetary policy,” they said.
The review also recommended the establishment of a separate monetary policy board that is expected to come into effect around July 2024. Boak said that makes it unclear whether this shift in the RBA’s reaction function will take effect in the near-term.
The government and the RBA are also due to agree on an updated Statement on the Conduct of Monetary Policy by year’s end.
Economists at Citibank Inc. said the new board and communication changes that will see external members deliver speeches means financial markets will now get an indication of “who sits on the hawk-dove scale.”
The RBA doesn’t currently reveal votes after rate decisions and only Governor Philip Lowe and his deputy Michele Bullock are tasked with discussing inflation and monetary policy.
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