RBA announces sweeping changes to way it operates

The Reserve Bank of Australia has announced it will make significant changes to its structure and operations, following intense scrutiny and criticism from the federal government, businesses and mortgage holders.

The changes include cutting the number of RBA board meetings (when it meets to decide on the official cash rate) from 11 times a year down to eight, holding media conferences after the meetings and working with the Treasury to undertake five-yearly open and transparent reviews of the monetary policy framework.

In a speech to the Economic Society of Australia in Queensland on Wednesday, RBA governor Philip Lowe said since the government released the findings of the independent review into the Reserve Bank a few months ago, the RBA board and staff had been working through the recommendations and their implications.

Lowe told those gathered at the business lunch that the review concluded that Australia’s current monetary policy framework was fit for purpose.

“The core elements of that framework are a central bank with operational independence and a flexible inflation target centred on 2% to 3%,” Lowe said. “In my view, and that of the review panel, these arrangements have served the country well.”

Lowe said the review also concluded that the RBA had dedicated staff focused on serving the public interest – “they are skilled and professional and carry out their jobs to a high standard”.

“Furthermore, the RBA is highly regarded internationally – something I hear often when I travel overseas,” he said.

Lowe said that “as times change, we too need to change”.

“The world we face is increasingly complex and it is right to re-examine how we make and communicate monetary policy decisions and how the RBA is managed. The board and the bank’s staff have supported the eeview, and we have been working constructively on the recommendations.”

Lowe said the review’s recommendations covered three general areas – the legislation the RBA operates under; its monetary policy processes and communication; and the way the RBA was managed as an organisation.

While the legislation was a matter for the government and the Parliament, the other two areas were largely for the board and the RBA’s management to consider.

Monetary policy processes and communication

Lowe said as a result of the board’s recent discussions, it had made the following decisions:

• From 2024, the board will meet eight times a year, rather than 11 times. Four of the meetings will be on the first Tuesday of February, May, August and November. The other four meetings will be held midway between these meetings. The exact dates for 2024 will be published soon and the dates for future years will be published well in advance.
   
• Board meetings will be longer than is currently the case, typically starting on the Monday afternoon and then continuing on the Tuesday morning. Meeting outcomes will be announced at 2.30 pm on the second day, typically a Tuesday as is the case now.
   
• All board members can attend an internal staff meeting before the board meeting, so they can hear directly from, and ask questions of, a broader range of staff.
   
• The post-meeting statement announcing the decision will be issued by the board, not by the governor.

• The governor will hold a media conference after each board meeting to explain the decision.
   
•  The quarterly statement on monetary policy will be released at the same time as the outcome of the board meeting (in February, May, August and November), rather than on the following Friday.
   
• The board, rather than just the governor, will be the signatory to the Statement on the Conduct of Monetary Policy, which is the document that records the common understanding on monetary policy between the RBA and the Australian government. The new statement is expected to be finalised later this year.
   
• The board will oversee the RBA’s research agenda as it relates to monetary policy and aspects of financial stability.
   
• The RBA will continue its current approach to climate change analysis, focusing on the implications of climate change for the economy, inflation and the financial system.
   
• The board will work with the Treasury to undertake five-yearly open and transparent reviews of the monetary policy framework.

Lowe said less frequent and longer meetings would give the RBA board more time to examine issues in detail and to have deeper discussions on monetary policy strategy, alternative policy options and risks, as well as on communication.

“Likewise, the staff will have more time for analysis, with less time spent preparing summaries of recent developments,” he said.

The post-meeting media conferences would provide a timely opportunity to explain the board’s decisions and to answer questions.

“This will complement our existing communications, including through speeches with Q&A. Together, this is a significant package of reform that will contribute to better decision-making and communication,” Lowe said.

One overarching principle the board sought to apply was that the RBA “should be as transparent as it reasonably can in a way that is useful to the community”.

“We want the community to understand what we are doing, why we are doing it and the factors we consider in making our decisions,” said Lowe.

There are a number of other review recommendations that are best considered after the legislative process has been completed and the new monetary policy board is up and running, helping to avoid locking the new board into a particular approach, said Lowe.

These recommendations relate to the publication of an unattributed vote count; all board members making regular public appearances to discuss their thinking and decisions on monetary policy;  the establishment of an expert advisory group to engage with the board; and  board papers being published with a five-year lag.

RBA management

Lowe said the review had looked at how the RBA operates internally, with recommendations “focused on ensuring the RBA is an open and dynamic organisation”.

He said the review panel had identified opportunities to further empower RBA staff, provide stronger leadership, create a more open culture that encourages constructive challenge, and make greater use of the staff’s technical skills.

“This all makes a lot of sense and is consistent with changes we have been making over recent years. And while we have made progress here, the review rightly points out that we have further work to do.”

Lowe said some steps had already been taken, including updating leadership goals that apply to all managers to make it clearer that they were expected to create an inclusive environment where staff can share ideas in an open and constructive way.

“In addition, a comprehensive 360-degree feedback process for all senior leaders will be introduced in the year ahead and we are exploring deeper and more consistent leadership training.

“We have also begun advertising more management vacancies externally and we will increase transparency around internal opportunities for rotations … we are also reviewing the internal processes and structure that support the board’s decision-making.”

Lowe said the review’s recommendation that the RBA appoint a chief operating officer to help the bank become an open, dynamic and efficient organisation made sense.