Inflation Targeting: A Decade of Australian Experience

It is a pleasure to be here in Adelaide to take part in this Economic Briefing. As the title of this address makes clear, I would like to look back over a decade of experience using an inflation target for monetary policy in Australia. Just a couple of weeks ago saw the tenth anniversary of a speech by Bernie Fraser, then Governor of the Reserve Bank, in which the outlines of our target can be seen. It was, admittedly, a tentative beginning – there was no drum roll, or breathless talk of a new era. A reasonably careful reading of that speech was (and is) needed to see the contours of the approach to monetary policy which was being developed, and the framework was not fully formalised until the 1996 Statement on the Conduct of Monetary Policy. It is perhaps for this reason that some commentators believe that inflation targeting in Australia in fact began much later. But those who were there at the time – as I was – saw the material in that and a couple of other speeches of the period as quite significant, in that it associated intent of policy with numerical objectives for inflation, even if only fairly broadly defined ones. The behaviour of policy over the ensuing years was, moreover, quite consistent with those ideas. Hence I remain happy to claim that inflation targeting in Australia began about ten years ago in the first half of 1993. So it is appropriate to mark the occasion with a look back at how inflation targeting has worked as a system. This is not the first review I have done – I drew some initial conclusions in 1999 after six years of experience. But we now have four more years experience – four fairly eventful years – so we can refine our conclusions.