A politically independent central bank has allowed politicians to abrogate their responsibility for implementing policies required to boost living standards.
is the fall guy for a political system that has loaded too much of the burden of managing the economic cycle and even delivering prosperity.
It worked for more than 30 years as the previously politically subservient central bank built enough policy credibility under governors Ian Macfarlane, Glenn Stevens and then Dr Lowe to keep inflation anchored within or close to the 2 per cent to 3 per cent target while delivering an unprecedented stretch of uninterrupted growth.
The Reserve Bank’s monetary policy stimulus and the debt-financed fiscal stimulus from the Coalition government prevented the jobless rate rising to 10 per cent or more. But, then the excess stimulus spilled over the economy’s disrupted supply chains to generate the sharpest inflation outbreak in 30 years.
Yet, as Dr Lowe suggested yesterday, the review did not canvas the more important question of why monetary policy had been left to take on all of the inflation-fighting burden. But the previous Coalition government’s attempts at a credible medium-term budget framework atrophied following the political failure of the 2014 budget.Now Labor has no such framework at all, despite the political slogans about a trillion dollars of debt.
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