By guest contributor, Jake Jodlowski, Principal, Atchison Consultants
Australian official interest rates are set by the Reserve Bank of Australia (RBA), an independent body established in 1959. It operates within an inflation-targeting regime which seeks price stability in the 2%-3% consumer price index band. Originally, the RBA also governed prudential policy but, as a result of several large scandals and bankruptcies in the late 1990s, that role was transferred to a discrete entity titled the Australian Prudential Regulation Authority (APRA).
The RBA’s role is set out in the Reserve Bank Act 1959. The Bank conducts the nation’s monetary policy and issues its currency. It seeks to maintain a stable financial system in which financial intermediaries, markets and market infrastructure facilitate the smooth flow of funds between savers and investors.
In late 1989, Australian official rates hit a cyclical peak at 19%. Afterwards, in what came to be known as the “Great Moderation” (this term was put forward in 2002 by James Stock and Mark Watson to describe the decline in the volatility of business cycles), official interest rates consistently fell alongside inflation and then oscillated in a band between 1.5% and 7.5%.