The Reserve Bank of Australia has been widely criticised for its conduct of monetary policy over the past two years. Some of that criticism is misplaced. Yes, the bank’s inflation forecasts were far too low, but the bond market’s forecasts were not much different.In the face of powerful long-term deflationary forces, such as those now in the global economy, it is a mistake to tighten monetary policy too early when short-term inflationary pressures emerge.
The RBA’s long-term view is evident in its actions. In October 2019, it was so concerned about deflationary pressures that it cut the cash rate to 0.75 per cent, at that point the lowest level ever, even though the economy was growing strongly. That extraordinary action was taken three months before COVID-19 was even known to exist.
It might be time to bring in someone from outside, in the vein of the Canadian Mark Carney being appointed governor of the Bank of England.
The Reserve stayed too low for too long, way too long. Not hindsight. It was obvious. At least it disproved the idiotic conspiracy stuff that it would not hike in an election campaign (as it did in 2007).
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