Splendid overview of RBA counter-productivity from my friend and colleague Martha:
In November 2024, The Reserve Bank Act was ammended. The changes now required the RBA’s monetary policy board to determine the monetary policy of the bank to stabilise prices in Australia, to maintain full employment in Australia and stabilise Australia’s financial system. The Reserve Bank’s role was to prevent banks from destabilising the financial system to prevent credit crashes. The Statement on the Conduct of Monetary Policy-Reserve Bank was an agreement between the Treasurer Jim Chalmers and the Reserve Bank Board on the 10th July 2025. The agreement provided full operational autonomy to the RBA’s Monetary Policy Board, underlining the RBA’s goals of price and inflation control.
Somehow the ‘economic prosperity and welfare of all Australians’, got swapped out for keeping the banking sector stable. Now whilst the concepts might be related, stabilisation of Australia’s financial system is no guarantee of either economic prosperity or welfare for all the people of Australia. The RBA has also completely reinterpreted the term ‘full employment.’
Specifically the RBA’s statement of monetary policy explains ‘to achieve its statutory objectives, the Bank sets monetary policy to keep inflation in the economy to 2%-3%, and employment at the desired level that is consistent with maintaining low and stable inflation. In other words, there always has to be a level of ‘natural’ unemployment to avoid inflation. Dr Kelly notes that even when inflation is within the RBA’s desired target range of 2-3%, the RBA does nothing to stop unemployment rising by lowering interest rates.
(Thanks for the name check, Martha.)
Governor Michelle Bullock has admitted that the RBA is basing its actions on the expectations of inflation, rather than direct observation of inflation. The RBA relies on the NAIRU (the non accelerating inflation rate of unemployment). The NAIRU cannot be directly observed or measured, it can only be inferred. My colleague, economist Katy Swain, hilariously calls the NAIRU, the RBA’s ‘invisible friend.’