The RBA has never known what to do about property prices, former deputy governor says

Have you wondered how the Reserve Bank of Australia came up with its "2-3 per cent" target for inflation? Do you like what's happened to property prices in the inflation-targeting era? Last week, the RBA published a fascinating and candid interview with Stephen Grenville. Australian economy grows 1.8pc Photo shows Welder works at InQuik Engineering in Newcastle.Welder works at InQuik Engineering in Newcastle. The Australian economy has grown slightly faster than economists were expecting thanks to a dramatic increase in household spending. Dr Grenville worked at the RBA between 1982 and 2001 (his last five years as deputy governor). He was at the RBA when it adopted its inflation target in the early 1990s and asserted its right to move interest rates up and down without political interference. In his interview, Dr Grenville talked about the RBA's ongoing struggle to know what to do about asset prices, including property prices. He said Australia's inflation-targeting framework still had unresolved issues. But does he think inflation targeting has worked well? "We had two decades where it worked well and one decade where, in my view, it didn't work so well," he said. "It worked well until 2010 […] "[But] it shouldn't get too much of the blame for its less good performance in the third decade, and there's still a lot to be said for it. "[It] still looks to me to be the best we can do." When did the interview occur? Dr Grenville's interview is part of the RBA's new oral history collection of interviews with former governors and deputy governors. You can read the transcript of his interview here. Keep in mind it was recorded in June 2023. At that point, inflation had only just started to decline from its recent post-COVID peak.