Policy Approach

Policy Aims

The Reserve Bank of Australia Act was altered in 1996. Many people refer to section 10, part two of this Act as the Reserve Bank's "charter", because it describes the way in which the bank should act to try and achieve certain economic goals for our country. The economic goals that were specifically identified in 1996 (and which are still current today) are:

The maintenance of full employment: Through the implementation of monetary policy, the RBA aims to achieve employment for all those who are willing and able to find work. As such, the RBA is very interested in the theoretical concept of the NAIRU.
The economic prosperity of all Australians: Closely related to the first point, in this instance the RBA is pursuing a certain standard of living for all Australians. This has been interpreted to mean that not only should they have a job, they should also be in a situation to satisfy all of their needs and the majority of their wants.
The stability of the currency: Many people interpret this goal to suggest that the RBA will aim to maintain a stable exchange rate, but in actual fact this is not correct. You should interpret this goal as the maintenance of purchasing power. In other words, our currency will be considered stable when inflation is kept low, because at this time the purchasing power of the currency that we receive will be stable. (Your Study Design specifically includes the words "Low Inflation" after this goal. Although this is not how it appears in the Reserve Bank Act, these words were added to remind you that this is a domestic economic goal, not an external one.)

These charter goals have been interpreted by the RBA to mean that they should aim to achieve stable prices in the Australian economy. In other words, monetary policy is used primarily to target a certain rate of inflation, and through that it is believed that the charter goals are more likely to be achieved. As you will recall from your study of Low Inflation in Unit 3, the specific goal for which the RBA aims is an average rate of inflation between 2% and 3% per annum over the course of the business cycle.

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