As if fighting the biggest inflation challenge in years was not enough, major central banks are once again being called upon to shore up the financial system.
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In the US the Federal Reserve has joined action to stem the fallout from the failure of Silicon Valley Bank (SVB), Signature Bank and Silvergate by lending against securities held by the institutions at face value while a consortium of large commercial banks has clubbed together to provide $45 billion to prop up another troubled lender, First Republic Bank.
In Europe, the Swiss central bank has provided up to $81 billion to help out troubled Credit Suisse.
The events have sent markets around the world on a wild ride as investors have veered between fears another global financial crisis is brewing and hope that it won't.
The events have not left Australia untouched. Several well-known tech firms including Canva and Xero had millions on deposit at SVB, for instance, and the local share market has lost value.
But so far no local financial institution appears to be in similar trouble, leaving the Reserve Bank of Australia to focus on its main task of bringing inflation down.
![RBA governor Philip Lowe appeared before Senate committee hearing last month. Picture by Keegan Carroll RBA governor Philip Lowe appeared before Senate committee hearing last month. Picture by Keegan Carroll](/images/transform/v1/crop/frm/202296158/ff3da6ae-a0fe-4be6-9c8f-9ea2370e7888.jpg/r0_256_5000_3078_w1200_h678_fmax.jpg)
The RBA wants to steer the economy along a narrow path to bring inflation down while limiting the increase in unemployment.
This is proving to be tricky.
On current forecasts, the Reserve Bank thinks the unemployment rate will need to reach 4.4 per cent if inflation - currently above 7 per cent - is to come down to within its 2 to 3 per cent target band.
But on the face of it, 10 successive rate hikes have barely caused a ripple in the labour market. In February the economy piled on almost 65,000 jobs, pushing the unemployment rate back down to a near-50-year low of 3.5 per cent from 3.7 per cent the previous month. This suggests the RBA has more work to do.
However, Angela Jackson of Impact Economics cautions against taking this as evidence that the economy is currently running hot.
There can be weeks between when a firm decides to recruit staff and when they actually commence, making employment a lag indicator, Ms Jackson says, warning that the central bank risks going "too far" if it targets the jobless rate.
Mixed messages from the Reserve Bank are not helping its cause.
When official figures showed inflation soared close to 8 per cent late last year, Reserve Bank of Australia governor Philip Lowe sounded the alarm, warning that "further increases in interest rates will be needed".
A month later, after the release of a slew of data showing conditions in the economy were softer than expected, Dr Lowe was more equivocal, talking about "when and how much further" interest rates would need to increase.
The governor does not accept there has been a change in the central bank's guidance.
The message, he said at a public event last week, has been consistent: "inflation is too high; we need to keep raising interest rates, and we're on a path to do that".
But, if the aim was to show consistency in the bank's commitment to tackle inflation, it clearly got lost in translation.
The markets thought they detected a change in tone and scaled back their rate hike expectations and began to price in the possibility of a pause in April.
The episode has added to concerns about the way the Reserve Bank operates and communicates with the public, following its foray into providing "forward guidance" on interest rates during the pandemic.
In a now infamous call, the governor in 2021 assured that interest rates would stay low until 2024 - a statement many have said they relied upon in deciding to take out a home loan.
Dr Lowe himself admitted last week that, "we could be doing communication better. The forward guidance we gave during the pandemic has come with costs".
A high-level review of the RBA due to be delivered to Treasurer Jim Chalmers at the end of the month is expected to recommend changes to the way the central bank communicates with the public, among other reforms.
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For prominent economists Chris Richardson and Nicki Hutley, that cannot come too soon.
Mr Richardson thinks the sharp change in tone in the central bank's message on inflation between last month and this month points to a significant problem in the way the RBA conveys what it is thinking.
"The Reserve Bank's thinking has never been more important to Australians," Mr Richardson says. "[But] it has the communication skills of a teaspoon".
"The Reserve Bank was clearly jolted by the December quarter inflation data and they in turn jolted households and businesses. This was clearly a change in view of how hard the inflation fight was going to be and they should have held a press conference [and] gone on television to explain it."
Ms Hutley bemoans the monthly scramble to parse the language in the central bank's monetary policy statements in an attempt to divine what it is thinking.
She thinks that, much like the US Federal Reserve, the RBA Board should be much more transparent about its deliberations, including disclosing who voted for and against changes in policy.
The RBA review is also expected to make recommendations about the composition of the board. The RBA governor, his deputy and the head of Treasury are all members, as are a range of people drawn from academia, business and public life.
Ms Hutley thinks the pool board members are drawn from is too shallow and needs to be much deeper to include people from a wide variety of backgrounds and experiences.
Mr Richardson says the board would benefit from a greater depth of technical skills in monetary policy, and suggests having two boards: "one outside board to assist with a broader range of organisational issues and a second board of monetary policy experts".
As Dr Chalmers contemplates changes to the central bank the stakes for him, the RBA and the nation could not be higher.
The narrow path to a soft landing, Mr Richardson warns, "has become very narrow and the narrower it gets the more likely a miscalculation becomes - doing too much or too little".
Such a high pressure situation is nothing new for the RBA, which in the last 15 years has been on the frontline as a series of shocks have hit the economy, from the global financial crisis to the COVID pandemic and the current burst of inflation.
During the GFC is slashed interest rates and pumped billions of dollars into the financial system and repeated the trick in 2020 when the coronavirus crippled activity.
The challenge it faces now is entirely different - to pull stimulus out of the system.
The RBA has been part of an unprecedented concerted move by central banks around the world since mid-2022 to rapidly tighten monetary policy as a confluence of events including the easing of pandemic restrictions, persistent supply chain bottle necks and the impact of Russia's war in Ukraine have sent inflation soaring.
Less than a year ago, the official cash rate was at an emergency low 0.1 per cent. It now sits at 3.6 per cent, which represents an extraordinary amount of tightening in a short period of time.
Dr Lowe thinks the current cash rate is restrictive and said earlier this month that although further interest rate rises were likely, the central bank had "an open mind" on the matter.
The financial ructions offshore, combined with evidence pointing to weaker domestic conditions such as declining inflation, house price falls, plummeting building approvals and recession-low consumer confidence, have many calling for a halt to rate hikes.
Ms Hutley says the circumstances warrant a rate pause in April, particularly given that the full impact of recent increases are yet to be fully felt.
Mr Richardson agrees, warning that the biggest risk is that the central bank tightens monetary policy too far.
The markets, spooked by the spate of bank failures offshore, are on board as well. On Friday they thought the odds of an April rate hike was less than 25 per cent (though this was likely to increase as actions taken to strengthen the financial system reassured investors).