Scott Morrison has dismissed calls for Australia’s inflation-targeting regime to be radically overhauled, saying the current system is working well despite record-low interest rates and anaemic inflation.

He said the Reserve Bank would not change its monetary policy objectives and will continue to behave as it has since the early 1990s, when Australia’s inflation target was introduced.

He has released a memorandum of understanding with the new RBA governor, Dr Philip Lowe, explaining why the RBA will keep focusing on inflation. Lowe became governor on Sunday, replacing the former RBA governor Glenn Stevens.

“The governor and I agree that now is not the time to be ... engaging in any monetary policy setting experiments,” Morrison said on Monday. “Both previous governors were able to successfully manage the inflation target within the band of between 2% and 3% ... [and] that remains the band.

“The environment for achieving this [in future] will be different to that than previous governors have faced but our goal remains the same.”

The Reserve Bank is committed to keeping inflation – the increase in economy-wide prices – within a range of 2% to 3% a year, on average, over the course of the economic cycle.

Economic theory suggests that keeping prices relatively stable is one of the best ways to encourage long-term growth.

But Senator Nick Xenophon last month called for Australia to overhaul its inflation-targeting framework, warning it was “out of date” and damaging to the economy. He said the RBA should instead target “nominal GDP” – which measures the current dollar value of the things we produce – because it gives a better sense of workers’ incomes.

He said wages were growing at “recessionary levels” and profits for small businesses were flat, and inflation targeting was doing nothing to help the situation.

“Australia’s ‘nominal’ growth rate – the growth in actual money in our pockets has fallen from 7% per annum in the decade before the GFC to only 2% today,” Xenophon wrote in Fairfax Media.

“Part of this so-called ‘income recession’ is a hangover from the end of the mining boom [but] a large part of it is also due to the out-of-date inflation target that the Reserve Bank of Australia has been tasked with hitting.

“The inflation target means the RBA can ignore our crashing national income growth, acting only when inflation is low.

“But many components of the consumer price index used to measure inflation – like health insurance, school fees, utilities, cigarettes and alcohol – virtually never fall, no matter what state the economy is in.

“A better option would be for the RBA to target a reasonable rate of growth in Australia’s nominal GDP.”

He then argued the RBA should target a nominal GDP growth rate of 5%, which is higher than the current nominal GDP growth rate of 2%.

“Incoming RBA governor Philip Lowe is due to take office on September 18,” he wrote. “If governor Lowe and treasurer Scott Morrison jettison the outdated inflation targeting approach for nominal GDP growth, it will represent a sea change in monetary policy that would help kickstart the economy.”

But Morrison rejected Xenophon’s argument on Monday, saying the 2-3% inflation target was working well and it was important to provide stability “in the settings we have”.

He said the RBA would not be lowering its inflation target to 2% to account for the “new normal” of ultra-low inflation. However, he warned that inflation expectations did need to be kept within the RBA’s target range.

“It’s important that we see a bit more activity in the economy,” he said. “You would have seen the speech I gave on Friday outlining the importance to boost incomes and I think getting inflation back into that target is a worthy goal.”

Well-respected economists support nominal GDP targeting, including the former US Treasury secretary Larry Summers, the former chairwoman of the Council of Economic Advisers under Barack Obama, Christina Romer, and the Australian economists John Quiggin and Warwick McKibbin.

The Economist last year said nominal GDP targeting should be considered by central banks.