(Bloomberg) — Former Australian Prime Minister and Treasurer Paul Keating criticized the central bank for failing to put aside monetary policy orthodoxy and not doing everything it could to help the government finance programs to boost employment.
Keating, who originally set the Reserve Bank of Australia on course to inflation-targeting independence as treasurer at the time, said he and his colleagues used to call it the “Reverse Bank” due to its slowness in responding to significant economic and financial events.
“The Reserve Bank is way behind the curve in supporting the government in its budgetary funding measures,” he wrote in the Brisbane Times newspaper Wednesday. “The RBA should return its eye to the Reserve Bank Act. Its job is to help the government meet the task of full employment. Price stability has been more than achieved.”
Photographer: Mark Metcalfe/Getty Images
Australia’s unemployment rate has jumped as hundreds of thousands of people lost their jobs due to the Covid-19 lockdown. Keating praised the RBA’s initial actions at the height of market uncertainty in March, when it slashed the cash rate and set a target for three-year bond yields of 0.25%, as well as setting up a low-interest bank lending facility.
But, he said, since then more could have been done. Keating took particular aim at RBA No. 2 Guy Debelle’s four options for further easing in a speech Tuesday. “The deputy governor conducts a guessing competition on what incremental step the bank might take,” he thundered.
Keating said the bank should be “explicitly supporting the government so the country does not experience a massive fall in employment — impacting particularly on younger workers — those who have already been obliged to wipe out their superannuation savings to support themselves.”
He suggested the RBA should fund a level of fiscal outlays by buying appropriate levels of government debt and locking it away on its balance sheet, “thereby making the government’s funding task much easier and support for the country better.”
The former prime minister accused policy makers of failing to look beyond the traditional policy response.
“Certainly not buying bonds directly from the Treasury,” he said “Wash your mouth out on that one. What would they say about us at the annual BIS meeting in Basel?” He accused the RBA of not even being ambitious enough in its bond buying in the secondary market, unlike the European Central Bank or the Bank of Japan.
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