The Evolution of Inflation Targeting in Australia

When inflation targeting commenced in Australia is disputed. Some believe it began in March 1993 when the Governor of the Reserve Bank (Bernie Fraser) referred in a speech to the desirability of maintaining inflation between 2 and 3 per cent a year. However, a similar reference to inflation targeting appears in a speech he made in August 1992. Some overseas authorities argue that it commenced in 1994, highlighting a speech Fraser made in September of that year. The year 1994 is significant also because the Treasurer (Ralph Willis) stated in parliament that the government and the Bank had an inflation target of 2–3 per cent. Paul Keating prefers 1995, while another possible starting date is August 1996 when the first Statement on the Conduct of Monetary Policy was signed by the Treasurer (Peter Costello) and the incoming Governor of the Reserve Bank (Ian Macfarlane). In all probability, there is no definitive starting date. Rather, the adoption of inflation targeting in Australia was the result of an evolutionary process, as with many other developments in the history of central banking.‘… there is no reason why the current underlying inflation rate of 2 to 3 per cent cannot be sustained’ (Bernie Fraser, ‘Two Perspectives on Monetary Policy’, Address to a conference in honour of Don Sanders, Sydney, 17 August 1992)‘My own view is that if the rate of inflation in underlying terms could be held to an average of 2 to 3 per cent over a period of years that would be a good outcome.’ (Bernie Fraser, ‘Some Aspects of Monetary Policy’, Address to Australian Business Economists, Sydney, 31 March 1993).