mandate

It’s official: financial system stability is part of the Reserve Bank of Australia’s mandate. This doesn’t mean, though, that the RBA will be bailing out banks.

The Reserve Bank’s mandate to uphold financial stability does not equate to a guarantee of solvency for financial institutions, and the Bank does not see its balance sheet as being available to support insolvent institutions.

With little fanfare, a statement published on the Bank’s website “records [its] common understanding of the Reserve Bank’s longstanding responsibility for financial system stability… arrangements which served Australia well during the recent international crisis period.” Read more >>

Should central banks persist with inflation-targeting? “The crisis has given fresh impetus to the ‘new environment hypothesis’ that pure inflation targeting is inadvisable and that the mandate of central banks should extend beyond just price stability,” Dr Duvvuri Subbarao said today.

The Indian central bank governor argues that price stability does not ensure financial stability. In fact, he says, there is a trade-off between the two, and “the more successful a central bank is with price stability, the more likely it is to imperil financial stability.” Read more >>