Australia’s central bank should set up an expert policy board, hold fewer meetings and give press conferences explaining its decisions, according to recommendations from an independent review that would align it with many global peers.
(Bloomberg) — Australia’s central bank should set up an expert policy board, hold fewer meetings and give press conferences explaining its decisions, according to recommendations from an independent review that would align it with many global peers.
In the first major overhaul of the Reserve Bank of Australia since the early 1990s, Treasurer Jim Chalmers announced Thursday in-principle agreement with all 51 recommendations. Some of those will require changes to the RBA’s operating law which is expected by July 1, 2024.
The report supported the existing flexible inflation-targeting regime while recommending the RBA’s financial stability role be legislated. Other proposals include eight monetary policy meetings rather than 11 and speeches on rate decisions by external board members.
RBA Governor Philip Lowe welcomed the recommendations. He said the report won’t fundamentally change how the economy operates. “We have to be realistic.”
Local markets barely moved on the announcements with most economists saying the findings were unlikely to alter the near-term outlook for interest rates. The Aussie dollar was down 0.1%, benchmark bond yields were a tad lower and the S&P/ASX 200 index of equities was flat on the day.
What Bloomberg Economics Says…
“The review proposes big changes to the look and feel of monetary policy — though nothing that would cause a shift in the immediate rates outlook”
— James McIntyre, economist
To read the full report, click here
The RBA report was commissioned by the new Labor government and follows harsh criticism of the bank from investors and some economists over issues ranging from its bungled exit from a yield target program to flawed rate guidance and poor communication.
In explaining the need for a separate policy board, the review found the current one provides only “limited challenge” to the views of top bank officials and that its skillset is “not matched to the complex and uncertain economic environment in which monetary policy will increasingly operate.”
RBA’s Lowe Defends Board, Reiterates Willingness to Keep Serving
In response, it recommended the six external members have diverse economic backgrounds and have direct access to RBA staff. They will work part-time, equivalent to about one day a week.
The review also recommended:
- The treasury secretary remain on the policy-setting board
- Five-yearly reviews of the monetary policy framework and tools
- The RBA’s post-meeting statement contain unattributable votes
- An updated Statement on the Conduct of Monetary Policy be agreed by the RBA board and government by the end of 2023
- Press conferences after each policy meeting
The recommended changes will “strengthen the bank’s governance and decision-making processes,” Governor Lowe said in a statement.
The treasurer announced two new external RBA board members — Iain Ross and Elana Rubin — after two current members decided not to seek reappointment. Ross previously headed the Fair Work Commission while Rubin is ex-chair of AustralianSuper Pty Ltd and Afterpay Ltd.
Ross’s “deep understanding” of labor markets and economics, and Rubin with over 20 years of corporate board experience across diverse sectors, will be “very worthy” RBA board members, Chalmers told reporters at a press conference in Brisbane.
A dual board structure is common at other central banks but such a change in Australia will require amending the RBA Act, for which bipartisan support in parliament is critical.
Shadow Treasurer Angus Taylor welcomed the proposals, saying it was his intention to “approach the implementation of this review with a spirit of bipartisanship.”
Chalmers reiterated Thursday that he will announce around mid-year whether or not Lowe gets an extension after this current term expires in September.
Lowe, in a media briefing after Chalmers, said he would be happy to keep serving as governor if the government wanted him to.
“If the government would like me to stay, I’m happy to stay,” he said.
–With assistance from Ben Westcott.
(Adds markets and comment from economist.)
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