Former prime minister Paul Keating isn’t alone in wanting the Reserve Bank to do much more to ensure economic recovery.
In an opinion piece for major newspapers he has said it ought to be directly funding government spending rather than indirectly by buying government bonds from third parties.
But we think there’s something else the Reserve Bank can do.
Governor Philip Lowe is right to call on governments to spend more, creating “fiscal stimulus”.
But we don’t think that absolves the Reserve Bank of the need to provide more “monetary stimulus”.
Simply put, the Reserve Bank needs to create more inflation. Quite a lot more.
For years now, the bank has chronically undershot its inflation target of 2% to 3% per year. This has to stop.
Consumer price inflation since the Reserve Bank’s 2-3% target
Authors: The Conversation