The RBA review’s push to broaden the central bank’s focus beyond price stability would distract from its core role of managing inflation, the former treasurer said.
Former treasurer Peter Costello has warned against requiring the Reserve Bank of Australia to give “equal consideration” to full employment and price stability, arguing it could let the government shirk responsibility for jobs and fuel higher inflation.made the recommendation for the so-called “dual mandate” of full employment and price stability to be included in a new statement on the conduct of monetary policy between Treasurer Jim Chalmers and the RBA board.
Mr Costello said codifying “equal consideration” of full employment and price stability in the agreement between the treasurer and RBA could lead to a “watering down” of the 2 per cent to 3 per cent inflation target he formalised in 1996 with then governor Ian Macfarlane.“If you give the bank multiple objectives, it diffuses the objective and the less accountable the bank will be for the inflation target,” he said.
The RBA legislation currently has three monetary policy objectives; full employment, “the stability of the currency” and “economic prosperity and welfare of the people of Australia”. “... One of the few things it can do, over time, is control inflation. But if you confuse it with a whole lot of other objectives, I don’t think it will do that well. And some of them are potentially in conflict as well.”The former Coalition treasurer suggested that the government was using monetary policy to deal with a host of problems that it should legislate to solve instead.
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