RBA defends transparency of interest rate decisions

1
23

Reserve Bank of Australia (RBA) governor Glenn Stevens has defended the transparency of the central bank’s recent interest rate decisions.

Mr Stevens told an audience in Sydney that financial markets were too comfortable about when central bank’s would hold, lift or cut interest rates before the global financial crisis.

“I think one of the problems in the pre-crisis risk period was arguably a little bit too much comfort being taken by financial markets and borrowers generally that a central bank would never hurt them or surprise them,” he said in response to a question at the 49th ACi conference in Darling Harbour.

“We have certainly never made a commitment not to make surprises.

“And nor should we, nor should any central banks.”

Mr Stevens said financial observers should view central bank decisions within an agreed framework of what were policy objectives.

“That framework remains in place, certainly in our case, but its possibly more difficult in places where unconventional things have been done and everybody is working in unfamiliar territory.

“But here we have the same framework, the same objective, the same modus operandi but there’ll still be the occasional controversy over did they or didn’t they, will they or won’t they in this particular month.

“From an over all perspective, that’s not too big a deal frankly.”

When the bank raised the cash rate to 3.25 per cent from three per cent in October last year, the decision came as a surprise to market observers who had all but ruled out a rate rise.

It continued to hike rates by 25 basis points each in November and December.

In February 2010, the market had fully priced in a rate hike of 25 basis points, but the RBA held steady.

The central bank raised the cash rate to four per cent from 3.75 per cent in March in a move that was widely expected.

AAP

About the author

1 COMMENT

LEAVE A REPLY

Please enter your comment!
Please enter your name here