I note that the recent reviews by the Federal Reserve, the European Central Bank and the Bank of Canada have all concluded that some form of flexible inflation targeting is the preferred monetary policy regime in their countries. [5] In my view, flexible inflation targeting has served Australia well and remains the best monetary policy regime for Australia.
It is certainly worth examining alternatives as part of the current Review of the RBA, but I do not see a strong case for a move away from this broad approach. Flexible inflation targeting is not a perfect monetary policy regime, but it is hard to do better. Any monetary policy regime is likely to face challenges in today’s changing world.