Australian banker committed to inflation targeting policy

SYDNEY: Australia´s central bank is committed to using an inflation target when setting monetary policy, a system it has used for over 20 years, the head of the Reserve Bank of Australia said on Tuesday, even in the current disinflationary environment.

Glenn Stevens said having a "medium-term low single-digit inflation goal" is still relevant as the system has "adequate flexibility to look at the broad picture and make sound decisions."  "It is, I think, easily the best monetary policy framework we´ve ever had and we´ve tried most of them over a long run," he told a gathering of business people in Sydney.  Stevens said it is not about controlling inflation in a very short period, but rather keeping it within a target over the medium term.

"Right now, (the inflation rate) is one point something, but on average in the long-run, it´ll start with a two and that is a piece of uncertainty you can put away. "Stevens was answering questions on a broad range of topics at the Trans-Tasman Business Circle.

The governor´s comments came amid increasing questions about whether it was appropriate for central banks to still use an inflation-targeting framework given the threat of global deflation.

Stevens was also speaking publicly for the first time since the May 3 policy review, when the RBA cut the cash rate by a quarter point to a record low 1.75 percent, citing surprisingly low inflation. The RBA has also slashed its inflation forecast for this year to below its 2 to 3 percent target band, prompting investors to price in the risk of at least another easing later this year. Markets are keen for a clearer hint on whether the RBA would cut again.

As usual, Stevens kept his cards close to his chest.  On the exchange rate, the central banker said the Australian dollar "at the moment is doing what it is expected to do."

"Sometimes, in the past, it has moved in ways we thought it was not consistent with fundamentals and we´ve on occasions - not anytime lately - been prepared to put our money where our mouth was with intervention.