Feb 5, 2008 - Reserve Bank | comments(0)
The table shows monetary policy decisions taken by the Reserve Bank of Australia.
Monetary policy decisions are expressed in terms of a target for the cash rate, which is the overnight money market interest rate.
In everyday terms, the cash rate determines the interest rate that banks set for home mortgages and other loans.
Dec 6, 2007 - Public Service, Reserve Bank, Rudd Government | comments(0)
Following its first Cabinet meeting in Brisbane, the Rudd Labor Government has announced measures aimed at strengthening the independence of the Reserve Bank of Australia.
The measures include raising the positions of Governor and Deputy Governor to the same level of statutory independence as the Commissioner of Taxation. Future appointments of the Governor and Deputy Governor will continue to be made by the government of the day but terminations will require parliamentary approval.
Appointments to the board of the Reserve Bank will be made from a register of candidates compiled by the Governor of the Bank and the Secretary to the Treasury.
Transparency measures already introduced by the Bank form part of the changes. Board minutes will be published and a statement of reasons will be provided each month, irrespective of whether there has been an adjustment in the cash rate.
This is the text of a joint media release from the Prime Minister, Kevin Rudd, and the Treasurer, Wayne Swan:
Rudd Government Announces New Era of Independence for RBA
Today’s release of a new Statement on the Conduct of Monetary Policy represents a new era of independence and transparency for the Reserve Bank.
The Statement outlines a mutual understanding on the conduct of monetary policy between the new Government, represented by the Treasurer, and the Governor as Chairman of the RBA Board.
The Statement delivers on the Rudd Government’s election commitment to strengthen the independence of the Reserve Bank and will enhance the transparency of the conduct of monetary policy in Australia.
Strengthening the independence of the Reserve Bank is a critical element of the Government’s commitment to putting downward pressure on inflation.
The new Statement does this through a number of reforms agreed between the Treasurer and the Governor.
To enhance the independence of the Reserve Bank, the positions of Governor and Deputy Governor will be raised to the same level of statutory independence as the Commissioner of Taxation and the Australian Statistician.
The appointments of Governor and Deputy Governor will be made by the Governor-General in Council and their terminations will require parliamentary approval. Currently the Governor and the Deputy Governor are appointed by the Treasurer and their appointment can be terminated by the Treasurer.
The Rudd Government is committed to improving the transparency of future Reserve Bank Board appointments and to remove political considerations.
Accordingly, the Secretary to the Treasury and the Governor of the Reserve Bank will maintain a register of eminent candidates of the highest integrity from which the Treasurer will make appointments to the Reserve Bank Board.
The new Statement also incorporates the transparency measures announced by the Governor yesterday including the publication of Board minutes, and a statement of reasons for the decision following each monthly meeting irrespective of whether there is an adjustment in the cash rate.
Today’s announcement is an important step towards ensuring the appointment processes, debates and decision making of the RBA are as independent and transparent as possible.
This is the text of a the statement from the Treasurer, Wayne Swan, and the Governor of the Reserve Bank of Australian, Glenn Stevens.
STATEMENT ON THE CONDUCT OF MONETARY POLICY
This statement records the common understanding of the Governor, as Chairman of the Reserve Bank Board, and the Government on key aspects of Australia’s monetary policy framework.
Since the early 1990s, inflation targeting has formed the basis of Australia’s monetary policy framework. Since 1996, this framework has been formalised in a Statement on the Conduct of Monetary Policy.
Monetary policy is a key element of macroeconomic policy and its effective conduct is critical to Australia’s economic performance and prospects. For this reason, it is appropriate and timely for the Governor, and the Treasurer on behalf of the new Government, to outline their mutual understanding of the operation of monetary policy in Australia.
This statement should continue to foster a better understanding, both in Australia and overseas, of the nature of the relationship between the Reserve Bank and the Government, the objectives of monetary policy, the mechanisms for ensuring transparency and accountability in the way policy is conducted, and the independence of the Reserve Bank.
Relationship between the Reserve Bank and the Government
The Reserve Bank Act 1959 (the Act) gives the Reserve Bank Board the power to determine the Reserve Bank’s monetary policy and take the necessary action to implement policy changes. The Act nominates the Governor as Chairman of the Reserve Bank Board.
The Government recognises the independence of the Reserve Bank and its responsibility for monetary policy matters and will respect the Reserve Bank’s independence as provided by statute.
The Government will implement two new initiatives to further enhance the Reserve Bank’s independence.
The positions of the Governor and Deputy Governor will have their level of statutory independence raised to be equal to that of the Commissioner of Taxation and the Australian Statistician. As such, their appointments will be made by the Governor-General in Council, and could be terminated only with the approval of each House of the Parliament in the same session of Parliament.
The Secretary to the Treasury and the Governor will maintain a register of eminent candidates of the highest integrity from which the Treasurer will make new appointments to the Reserve Bank Board. This procedure removes the potential for political considerations in the appointment process and ensures only the best qualified candidates are appointed to the Reserve Bank Board.
Section 11 of the Act prescribes procedures for the resolution of policy differences between the Reserve Bank Board and the Government. The procedures, in effect, allow the Government to determine policy in the event of a material difference; but the procedures are politically demanding and their nature reinforces the Reserve Bank’s independence in the conduct of monetary policy. Safeguards like this ensure that monetary policy is subject to the checks and balances inherent and necessary in a democratic system.
In addressing the Reserve Bank’s responsibility for monetary policy, the Act provides that the Reserve Bank Board shall, from time to time, inform the Government of the Reserve Bank’s policy. Such arrangements are a common and valuable feature of institutional systems in other countries with independent central banks and recognise the importance of macroeconomic policy co-ordination.
Consistent with its responsibilities for economic policy as a whole the Government reserves the right to comment on monetary policy from time to time.
Objectives of Monetary Policy
The goals of monetary policy are set out in the Act which requires the Reserve Bank Board to conduct monetary policy in a way that, in the Reserve Bank Board’s opinion, will best contribute to:
(a) the stability of the currency of Australia;
(b) the maintenance of full employment in Australia; and
(c) the economic prosperity and welfare of the people of Australia.
The first two objectives lead to the third, and ultimate, objective of monetary policy and indeed of economic policy as a whole. These objectives allow the Reserve Bank Board to focus on price (currency) stability while taking account of the implications of monetary policy for activity and, therefore, employment in the short term. Price stability is a crucial precondition for sustained growth in economic activity and employment.
Both the Reserve Bank and the Government agree on the importance of low inflation and low inflation expectations. These assist businesses in making sound investment decisions, underpin the creation of jobs, protect the savings of Australians and preserve the value of the currency.
In pursuing the goal of medium-term price stability, both the Reserve Bank and the Government agree on the objective of keeping consumer price inflation between 2 and 3 per cent, on average, over the cycle. This formulation allows for the natural short-run variation in inflation over the cycle while preserving a clearly identifiable performance benchmark over time.
Since the adoption of inflation targeting in the early 1990s inflation has averaged around the midpoint of the inflation target band. The Governor takes this opportunity to express his continuing commitment to the inflation objective, consistent with his duties under the Act. For its part the Government indicates that it endorses the inflation objective and emphasises the role that disciplined fiscal policy must play in achieving such an outcome.
Transparency and Accountability
Monetary policy needs to be conducted in an open and forward looking way. A forward looking focus is essential as policy adjustments affect activity and inflation with a lag and because of the crucial role of inflation expectations in shaping actual inflation outcomes. In addition, with a clearly defined inflation objective, it is important that the Reserve Bank continues to report on how it sees developments in the economy, currently and in prospect, affecting expected inflation outcomes. These considerations point to the need for effective transparency and accountability arrangements.
The Reserve Bank takes a number of steps to ensure the conduct of monetary policy is transparent. Changes in monetary policy and related reasons are clearly announced and explained. The Reserve Bank’s public commentary on the economic outlook and issues bearing on monetary policy settings, through public addresses, its quarterly statements on monetary policy and monthly bulletins, have been crucial in promoting increased understanding of the conduct of monetary policy. The Reserve Bank will continue to promote public understanding in this way.
The Governor has also indicated that he plans to continue the practice of making himself available to report on the conduct of monetary policy twice a year to the House of Representatives Standing Committee on Economics, Finance and Public Administration.
The Governor has announced that the Reserve Bank Board will release a statement explaining the reasons behind its decision on monetary policy following each meeting, irrespective of whether there is a change in the cash rate target. This statement will be made on the afternoon of the day of each Board meeting (rather than the morning of the following day), with the minutes of the Board meeting being released publicly as soon as possible after the meeting.
The Governor has also indicated that the Reserve Bank will continue to extend the scope of the economic forecasts in its quarterly statement on monetary policy to enhance public understanding of the conduct of monetary policy.
The Treasurer expresses support for these arrangements, which bring the transparency and accountability of the Reserve Bank’s conduct of monetary policy into line with international best practice, further enhancing the public’s confidence in the independence and integrity of the monetary policy process.
Dec 5, 2007 - Reserve Bank, Rudd Government | comments(0)
The Reserve Bank of Australia has held interest rates at current levels but expressed concern about inflation tendencies in the economy.
Following the Reserve’s board meeting yesterday, the cash rate remains unchanged at 6.75%.
The Governor of the Reserve Bank, Glenn Stevens, said: “The Board remains concerned about the outlook for inflation.”
This is the text of the statement from the Reserve Bank:
STATEMENT BY GLENN STEVENS, GOVERNOR
MONETARY POLICY
At its meeting yesterday, the Board decided to leave the cash rate unchanged at 6.75 per cent. As part of wider changes to communication practices which the Board has adopted (see separate announcement on communication), it was further decided that a statement explaining the decision would be released.
Recent information continues to indicate strength in demand and output in Australia, with the economy having relatively little surplus capacity. Inflation on a year ended basis, as measured by the CPI and underlying measures, is likely to be above 3 per cent in the first half of 2008, and to decline somewhat thereafter.
Sentiment in global credit markets has deteriorated recently after an earlier improvement and prospects for growth in the major economies appear to be weakening. It is unclear to what extent that will affect Asia, where conditions at this point look quite strong. But overall, it now appears likely that global growth will be closer to trend in 2008, after several years of above trend growth. High prices for food, energy and natural resources, however, continue to pose a significant risk to inflation around the world.
In Australia, the pressures arising from the global financial turmoil have been less pronounced than elsewhere, and the flow of credit to sound borrowers does not appear to have been impaired. Nonetheless borrowing costs have risen appreciably since mid year, particularly for business borrowers, as a result both of changes in monetary policy and market-driven increases in funding costs for intermediaries. Depending on conditions in wholesale markets in the near term, some further rise in rates charged to borrowers may yet occur. These developments will help to contain private demand over the period ahead.
The Board remains concerned about the outlook for inflation. But given the heightened uncertainty about the international outlook and the local trends in wholesale borrowing costs, both of which could have a bearing on inflation over the medium term, it judged that the current stance of monetary policy should be maintained for the time being.
Nov 7, 2007 - 2007 Federal Election, Howard Government, Reserve Bank | comments(0)
The Reserve Bank has announced a 25 basis points increase in the cash rate to 6.75%.
The interest rate increase is the first to ever take place during an election campaign.
It is the sixth increase in interest rates since the 2004 election.
This is the text of the statement on monetary policy by the Governor of the Reserve Bank, Glenn Stevens.
At its meeting yesterday, the Board decided to increase the cash rate by 25 basis points to 6.75 per cent.
Inflation in Australia has increased. Underlying inflation was 0.9 per cent in the September quarter and close to 3 per cent over the past year. The annual pace of CPI inflation was lower, but this reflected two very low quarterly results nearly a year ago, as well as recent changes to the treatment of child care costs. By the March quarter of next year, both headline and underlying measures of inflation are likely to be above 3 per cent.
During 2007, the pace of growth of demand and output has also increased. There are few signs of that strength diminishing as yet, and reports of high capacity usage and shortages of suitable labour persist. Growth in labour costs has been contained so far, and high levels of investment are adding to productive capacity in some sectors. The rise in the exchange rate will help to contain pressure on prices. But growth in aggregate demand will, nonetheless, need to moderate if inflation is to be kept to 2-3 per cent in the medium term.
In reaching its decision, the Board continued to look carefully at developments in international financial markets. Conditions have improved over the past couple of months, but confidence remains fragile. Funding costs for intermediaries remain elevated relative to official interest rates, and capital market conditions are still difficult, in several major countries. This is likely to result in some moderation in growth in those countries in 2008, and forecasts for global growth have been revised down accordingly. The world economy is still expected to grow at an above-average pace, however, led by strong growth in China and other parts of Asia. High global commodity prices remain an important source of stimulus to Australian spending and activity.
In Australia, the tightening in credit conditions resulting from the global turmoil has been less pronounced than elsewhere. Wholesale funding costs have risen a little compared with official rates, and some borrowers have experienced an increase in interest costs as a result, but the flow of credit to sound borrowers does not appear to have been impaired.
Having weighed both the international and domestic information available, the Board judged that a further increase in the cash rate was needed now in order to contain inflation in the medium term.