Treasurer Josh Frydenberg has announced that he will leave unchanged the official agreement between the government and the Reserve Bank of Australia (RBA).

The move will keep the RBA’s inflation target at 2 to 3 per cent, which will have the effect of easing pressure to cut interest rates and giving the central bank more time to react.

Commenting on his decision, the Treasurer said Australia is not isolated in its experience of low growth.

Alongside the rest of the developed world, Australia is experiencing an “extended period of low inflation, low unemployment and low interest rates”, Mr Frydenberg said. 

The Treasurer indicated that he expects the inflation rate to improve over a longer time horizon, despite the Reserve Bank missing its target for 15 months. 

“Indeed over the medium term, inflation is expected to return to the band consistent with the statement,” Mr Frydenberg said.

The target, unchanged since the 1990s, has consistently undershot in recent years, prompting calls from the central bank to lower the target.

However, Mr Frydenberg has indicated that it was strong monetary policy that has maintained stability for Australian businesses and the economy at large during periods of uncertainty.

“Domestic and global markets can be reassured that Australia remains a stable and predictable place to invest and do business, with a proven and effective monetary policy framework,” Mr Frydenberg said.

The current Statement on the Conduct of Monetary Policy, as agreed between the central bank and the government, was established in 1996.

It has been updated six times since then.

The framework sets out the objective of monetary policy, including the mechanisms for ensuring transparency, accountability and the independence of the Reserve Bank.

The creator of the original agreement and framework, former treasurer Peter Costello, has recently weighed in on the operation of monetary policy in 2019.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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