RBA outlines future path for forward guidance

The Reserve Bank of Australia (RBA) has indicated it will not follow the path of the US Federal Reserve by issuing ‘dot plots’ for forward guidance.

The central bank had been criticised recently after stating interest rates were unlikely to rise until 2024 only to then raise then multiple times this year.

“Taking on the lessons of recent experience, the board now favours a less-specific approach than that used during the pandemic.”

In a review of its forward guidance, the bank said it would continue to publish economic forecasts and key considerations for monetary policy decisions.

However, it said it did not intend to publish forecasts of the expected cash rate path, otherwise known as ‘dot plots’ and used by the US Federal Reserve.

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It said forward guidance should be flexible and was not always required in all types of circumstances.

“In times when the policy rate is not at the effective lower bound, forward guidance can be used to help inform the public and markets, but it is best to avoid being too prescriptive. A flexible approach will allow communication to adjust to the evolving economic situation.

“There are circumstances in which specific forward guidance is unlikely to be of use and there is no presumption that guidance about future interest rates will always be provided. Ordinarily, any guidance about future interest rates would be over a relatively near-term horizon and would not be time-specific.”