MONETARY POLICY

Abstract

Monetary policy differs from other aspects of economic and social policy because it is not directly under the control of the federal government: it is managed by the Reserve Bank of Australia (RBA), which operates on the principle of central bank independence, at ‘arm’s length’ from the government. Although the Bank is operationally independent, its aims and powers are set out in legislation, and interpreted in the Statement on the Conduct of Monetary Policy, all of which can be changed by the government of the day. Moreover, because the monetary policy that the Bank pursues impacts on macroeconomic conditions, it constrains what any government can effectively do in other policy areas. Currently, the wave of inflation over the last two years has loomed large among the economic challenges facing both the Bank and the Albanese government. This ongoing inflation – together with the report of the review of the Bank established by Treasurer Jim Chalmers – make it opportune now to assess the role of monetary policy in Australia.