Tcorp economist calls on RBA to abandon 2.5% inflation midpoint target

Bloomberg is gated, but in breif:

NSW Treasury Corporation’s (TCorp) chief economist Brian Redican has called on the Reserve Bank of Australia to scrap its focus on hitting the 2.5% midpoint of its inflation target range

• the benchmark imposes unrealistic expectations on monetary policy
• creates unnecessary confusion in financial markets:
• inflation outcomes are more likely to be shaped by global forces such as oil prices or U.S. trade policy than by small tweaks to interest rates
• RBA has muddied communication due to its reliance on economic models to justify its decisions
• dismissed the relevance of the neutral rate

His comments come ahead of a new Statement on the Conduct of Monetary Policy to be signed by Treasurer Jim Chalmers and the RBA board. The statement is expected to formalise recommendations from the RBA review, including the adoption of a 2.5% midpoint target.

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The Reserve Bank of Australia meets next week, July 7 and 8. A 25bp rate cut is widely expected.

The latest monthly CPI data point, 2.1% headline for May, if reflected in the official quarterly data, argues for further near term cuts ahead.

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