Peter Costello wants the central bank "held to account" for the inflation surge
Former treasurer Peter Costello blames the Reserve Bank of Australia for the inflation explosion, saying the central bank should be held to account for its handling of monetary policy.
Costello, now the chairman of Future Fund, made the comments while announcing an annual loss as asset prices fell after central banks began lifting interest rates, The Australian said.
“We do have to think about mechanisms to make sure that the central bank is held to account,” Costello said. “If it’s got a target for 2-3% inflation, it should be held to account, and if it doesn’t deliver, there should be some kind of consequence.”
Costello’s criticisms come after the government commissioned a review of the RBA by an independent panel of experts, The Australian reported. The panel is due to make recommendations by March.
While he acknowledged that fiscal policy was loosened during the COVID-19 pandemic, Costello said that the RBA had a “pretty narrow focus” to keep inflation between 2% and 3%.
Read next: Is it time for official cash rate hikes to slow?
“So whatever’s going on in the general economy, it should be focused on delivering that outcome,” he said. “It’s not responsible for coronavirus or anything else. I’m not pretending the government didn’t make any mistakes … but even in that very narrow area, which is where the RBA operates … it made the failure worse, because it had a focus and a very limited and specific area of responsibility. When [the RBA] got into the COVID thing and started giving forward guidance … and [RBA Governor Philip Lowe] says, ‘Oh, well, it was a crisis and I had to do what I could’ … but if you’re relied on the guidance, you would be in a terrible state now – the guidance was wrong.”
Costello said he was relieved that Future Fund didn’t rely on the RBA’s guidance last year that it wouldn’t raise the cash rate until 2024.
“I’m very glad we didn’t – we’d be in a terrible position today,” he said. “But there are some young homeowners that might have, some investors might have, and it didn’t do them much good. I think it’s the right target, and at the end of this inquiry, I hope they continue it. You’ve got to hold people accountable for executing to the target.”
