MNI POLICY: RBA's Monetary Policy Dept. To Target Scenarios

(Repeats story first published May 9 to additional subscribers)

The Reserve Bank of Australia’s new Monetary Policy Strategy Department, established late last year and led by former Deputy Head of Economic Research and ex-Riksbank senior advisor Meredith Beechey Osterholm, will play a key role in scaling up the use of policy scenarios similar to those developed by Deputy Governor Andrew Hauser following the February rate cut to 4.1%, MNI understands.

The department will prepare policy briefing materials for the Monetary Policy Board and work closely with both the Board and senior leadership. It will focus on presenting alternative policy scenarios that outline trade-offs between inflation and employment, as well as the associated costs, benefits, and risks of each path.

While the department will not produce forecasts or conduct primary research, it will synthesise work from across the Bank to provide the Board with policy alternatives.

The Reserve is currently expanding the team with both internal transfers and external hires. The department was established in response to the 2023 RBA Review, which recommended that the Reserve strengthen its expertise in presenting the Board with policy alternatives.

RBA officials for the first time presented the Board with two alternative scenarios at the February meeting: one in which underlying CPI undershot the 2.5% midpoint target if the cash rate held at 4.35% for two years, and another featuring multiple 25bp cuts over the same time frame. Hauser revealed the scenarios, which some took as a form of forward guidance and a sign of a more reactive future RBA. (See MNI INTERVIEW: RBA More Reactive In Future - Former Economist)