An overview of the effects of monetary policy in Australia on GDP and inflation, from 1961 to the present day.

% annual growth rate:

  M3 Nominal GDP
1961-2022 10.36% 8.40%
1961-1970 7.83% 8.38%
1971-1980 15.54% 14.08%
1981-1990 13.40% 11.25%
1991-2000 6.78% 5.17%
2001-2010 11.59% 7.09%
2011-2020 7.64% 3.83%

Sources: M3 from OECD database and nominal GDP from IMF database, as at September 2023.

The medium-term relationship between money and nominal GDP growth in Australia, 1961-2022

Five-year moving averages of annual % changes, with 1963 being the start of the first five-year period

Comment on monetary trends in Australia

After years of high monetary instability and double-digit inflation in the 1970s, Australia resumed to more moderate rates of growth of broad money in the mid-1980s and in turn, to lower rates of inflation. In the early 1990s the adoption by the Reserve Bank of Australia of a monetary strategy committed the Bank to an inflation (range) target has allowed for prices to remain quite stable and moderate since then. This period of more than 20 years of inflation stability has been accompanied by a quite remarkable and steady annual rate of growth of the economy at around 5% on average. However the exponential growth of credit to the private economy from the early 2000s until the outbreak of the Global Financial Crisis led to a very rapid growth in broad money, resulting in very high and clearly unsustainable rates of growth in M3 in 2007 (20.8%) and 2008 (17.6%). This excessive money growth was accompanied by soaring stock markets and property markets, clearly signaling asset price inflation in the years running up to the crisis.

Unlike most developed economies in the Great Financial Crisis, Australia did not suffer deflation or recession in the late 2000s. The rate of growth of broad money decelerated after 2009 although the amount of money did not fall but instead grew at more moderate rates (around 7% year on year on average).

In common with many other countries, Australia saw a sharp increase in broad money growth in 2020 thanks to stimulus measures introduced to counteract the effects of the coronavirus pandemic. This caused inflation to rise sharply in 2022, peaking at just under 8% in 2023. Interest rates were increased in 2022-3 and broad money growth turned negative in mid-2023, suggesting that the country may suffer an economic downturn in the not-too-distant future.