The Board is seeking to provide a strong nominal anchor that people can rely on when making their decisions. Most people in our society can cope with small variations in inflation from year to year, but medium-term uncertainty is much harder to deal with. Importantly, we have always seen the inflation target as nested within the broader objective of welfare maximisation.
This means that the question the Reserve Bank Board asks itself when making interest rate decisions is how those decisions can best contribute to the welfare of the Australian people. In particular, we are seeking to achieve the maximum sustainable rate of employment consistent with inflation being at target.