How Independent is the Central Bank in Australia?

Relationship between Central Bank and Government

Question 1A )

How independent is the central bank in this country? [ HO ZI XUAN JOLENE]

There is always some kind of relationship between the central bank and the government. Whatever the government do, it will affect the central bank either postivity or negativity .But for Australia’s central bank, it is not directly under the authority of government and they are free from political pressure (StellaZhou). As said, they have high degree of independent as they do not rely government for any funding and manage by themself.

For central bank the biggest threat they have to face is inflation arise where the central bank needs to fund government budgets ( B.W.Fraser). But in the recent decades, Australia’s central bank have moved towards a position where they can accept or reject the funding. With this, the central bank can decide on their own and they can diversify the funds to better use in helping to increase economic growth which will benefit everyone in the country.

In addition, Australia’s central bank have clear goals and commitment on which of the areas they want to work at and which of the area they need to improve on. Underlaying inflation is what all of the central bank have to monitor and for Australia they managed to keep underlaying inflation to 2 per cent as what they promised. After the target is introduced in 1933 , inflation rate has improved and did not fluctuate as much as before. With the target, the rate is controlled and every year it is around that range of 2 to 3 per cent  ( Reserve bank of Australia). This shows that the central bank has high degree independent enough to set commitment and everything is in their control.

To determine whether how independent is Australia central bank we also need to focus at the freedom of monetary policymakers from direct political or government influence in the conduct of policy ( Carl E. Walsh). Australia central bank had a economic score of 80.9 and it remain the same from the year 2018 to 2019. This overall score is relatively maintain at a well score above the world average. Australia can achieve a well score thanks to government influence that is effective. Like, the government support transition through corporate tax cuts and negotiation of additional trade agreements. As a result, Austalia have a high score of labour freedom, government’s intergity, its fiscal health and trade freedom and this leads to the high degree of independent of the central bank in Australia ( Economic Freedom).

In 2019, Australia central bank held interest rate at a record low rate and this will stimulate economic growth as with lower interest rate it will encourage borrowing and investing . The bank is preparing to ease monetary policy further to support the growth. ( The business times) . With this, it shows that Australia central bank is very independent and can actually start to move towards a direction where is supporting and contributing eonomic growth.