this flexibility can be used in a way that does not prejudice the achievement of medium - term price stability. importantly, this flexibility can help reduce the amplitude of cycles in activity and employment. it can also have the benefit of reducing financial stability risks, especially if cutting interest rates in response to a positive supply shock and lower inflation encourages excessive borrowing and asset overvaluation. again, i want to make it clear that the central bank does not need a broad mandate to have this flexibility. it is possible that a central bank with only an inflation mandate would achieve the same results, especially if it has a flexible, rather than rigid, inflation target. the other topic of this session is the coordination arrangements with government. i have already spoken about the agreement on the inflation target, so i would like to touch on four other aspects of the relationship between the central bank and the government. first, the government appoints all the members of the reserve bank board ( which is the decision - making body for monetary policy ). the governor has a term of seven years and often serves a longer term. other board members are appointed for at least five years and often serve multiple terms. besides the governor and the deputy governor, all members of the board are external and are prominent members of the business, academic or policy communities. the secretary to the australian treasury ( who is the most senior public servant in the treasury department ) is also a full voting member of the board. the secretary participates as an economist in their own right, not as a representative of the government, but is able to share details of the government ’ s fiscal and other plans. the board is apolitical and there is not a tradition of board members stepping down following a change of government. board members ( including the governor ) can have their appointments terminated only if they : become permanently incapacitated ; become bankrupt ; miss too many meetings ; or fail to satisfy their obligations regarding the governance of a public sector entity. these termination provisions have never been used and are not a point of controversy. second, there is a frequent exchange of views between the governor and the treasurer. this exchange is mostly on an informal basis, as circumstances require. the treasurer does not attend meetings of the board, nor has the right to do so. the government and the opposition support the independence of the rba and when the government is asked about monetary policy, the typical response is that monetary policy is a matter for the independent reserve bank. third, the rba is the transaction

##a that makes decisions about intervention in the market. we rarely intervene and are transparent regarding the conditions under which we would do so. in particular, we only intervene if : ( i ) market liquidity has significantly deteriorated during a period of stress ; or ( ii ) the exchange rate has moved a long way from fundamentals, with damaging consequences for the overall economy. the last time the rba intervened in the foreign exchange market was during the global financial crisis, more than 13 years ago. so intervention is very unusual. we do not have an objective for the exchange rate, nor would it make sense to do so. in my view, adding an exchange rate objective to the central bank ’ s other objectives would severely compromise the achievement of those other objectives and produce, on average, poorer results. 1 / 4 bis central bankers'speeches turning now to the inflation objective, australia was an early adopter of flexible medium - term inflation targeting. from the outset, our target has been for cpi inflation to average between 2 and 3 per cent over time. we have focused on the medium term rather than the outcome in a particular year or over a specific forecast horizon. we never bought into the idea that the central bank needed to be placed into a straightjacket or surrounded by an electric fence to stop it from exploiting the short - run phillips curve. we have always had a flexible approach that allows for some variation in inflation from year to year. while financial markets are often concerned about whether inflation in a given year is 1. 7 or 2. 3 per cent, most people in the real economy rightly don ’ t focus too much on this. what matters for overall welfare is that people are confident that their savings and their income will not be eaten away by inflation. it is also important that saving and investment decisions can be made without inflation figuring prominently on people ’ s radar screens. there are various ways of achieving this, but we have found a flexible medium - term inflation target works well. in terms of the formalities, australia ’ s inflation target is not set out in legislation. it was originally set by the central bank, but soon after was codified in a written agreement between the central bank and the government. 2 this agreement is reviewed whenever there is a change of government or central bank governor. over the 25 years since the first agreement was signed, the language has evolved considerably but the numerical target of 2 to 3 per cent has been maintained and so too has the focus on the medium