Review recommends a second panel of experts take over cash rate calls
The Reserve Bank’s interest rate decisions will be made by a second board of experts as part of a sweeping overhaul of the central bank.
The changes come after a review found that a lack of technical skills contributed to a series of policy mistakes by the RBA in recent years, according to a report by The Australian.
The government will back all 51 recommendations in the exhaustive review of the RBA, The Australian reported.
The results of the months-long review were recently delivered to Treasurer Jim Chalmers, who said the changes would “ensure Australia’s central bank and monetary policy arrangements are as strong and effective as they can be into the future.”
The report also throws into question the future of RBA Governor Philip Lowe, whose seven-year term expires in September, according to The Australian. Most market-watchers expect that the overhaul advocated in the report will require new leadership, and Lowe is not expected to be reappointed.
The central bank has drawn public ire for spending most of 2021 insisting that interest rates were unlikely to rise until 2024 before embarking on a program of 10 consecutive rate rises beginning in May of last year.
The RBA has admitted that the bungled rate predictions caused it “considerable reputational damage.”
New board recommended
Despite the recommended changes, the review will reaffirm the central bank’s independence and the inflation-targeting framework that guides its rate-setting process, The Australian reported.
The report will recommend the creation of a separate monetary policy-setting board that will sit alongside the governance board, the publication reported. That will require a change to the Reserve Bank Act, which means the change will need crossbench or Coalition support to pass through Parliament.
Bipartisan support
Chalmers has sought bipartisan support for the review, with Opposition Treasury spokesman Angus Taylor receiving several briefings from the review panel, The Australian reported.
Read next: REIA welcomes “evidence-based” RBA rate call
Taylor told the publication that the Coalition’s focus was on making sure the bank maintained its independence and that its policy approach remained “laser-focused on returning inflation to the 2-3$ target.”
“The Reserve Bank of Australia has served Australia well for a long period of time,” Taylor said. “We want to make sure this crucial economic institution is maintained and that there are no distractions getting in the way of its core objectives.”
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