Mr Keating lashed the “Reverse [sic] Bank” for not directly financing government expenditure through direct bond purchases, calling its board “the high priests of the incremental” and accusing them of abandoning their mandate of full employment.
“The problem about central banks – and this is true of the Reserve Bank of Australia – is that it has become a sort of deity, where lesser mortals might inquire, however respectfully, what the exalted priests might be thinking or have in mind for their prosperity or the country at large,” Mr Keating said in a letter distributed to media.
But Mr Frydenberg has slammed the attacks as “nasty, vindictive, unnecessary, misguided” and said the government would always respect the RBA’s independence.
“The RBA has done very well through this crisis,” Mr Frydenberg told media.
“Unlike other crises, they didn't have room to move on monetary policy…because the cash rate was already low during this crisis it could only come by down by 50 basis points. But what the Reserve Bank did was they pumped liquidity into the banking system to stabilise it, which was good news for customers, and they purchased government bonds on the secondary market, some $60 billion worth of government bonds.”
Mr Frydenberg suggested that Mr Keating was upset by RBA governor Lowe’s claim that the legislated superannuation increase to 12 per cent would hit wage growth in the middle of Australia’s biggest recession in 100 years.
“Why did he make the comments just two weeks after the Reserve Bank had made some comments about the superannuation guarantee and the trade-off between wages and that increase?” Mr Frydenberg said.
“Many people are left wondering what Paul Keating’s motives behind this nasty, unnecessary attack are. We as a government value the independence of the Reserve Bank when it comes to monetary policy….he shouldn’t be attacking the bank like he has.”
