The review into the central bank's operations is due to be delivered to Treasurer Jim Chalmers today
Significant changes to the Reserve Bank are expected to be recommended in a review due to be delivered to Treasurer Jim Chalmers today.
The review examined the central bank’s objectives, policy implementation, communications and governance. Possible recommendations include establishing a new structure for deciding monetary policy, The Australian reported. The review marks the first major overhaul of the RBA in 40 years.
Committee changes
The report is expected to recommend the appointment of a new committee to review monetary policy. That committee would include RBA members and external economists, in contrast to the current board, The Australian reported.
The current nine-member board includes the governor and deputy governor of the RBA and the secretary of the Treasury. Other board slots are largely filled with business figures. That arrangement isn’t the norm for other central banks around the world.
Other central banks like the US Federal Reserve and the Bank of England have committees of monetary policy experts to determine policy, The Australian reported.
Economist Saul Eslake told The Australian that the current members of the RBA board didn’t have the “background or the expertise” to challenge monetary policy recommendations made by central bank officials.
“It would be better if monetary policy decisions were taken by a body which had collectively greater experience in economics and monetary policy than the current board has,” Eslake said.
The report is also expected to examine the RBA’s use of inflation targeting to guide its monetary policy. The central bank’s target inflation range is currently 2% to 3%.
Inflation targeting is widely used by central banks globally, and the report is expected to support its continued use by the RBA. However, the review may have more specific recommendations about how to implement it, The Australian reported.
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Chalmers said Thursday that he would consider the recommendations made before releasing the report publicly next month. He said the government was prepared to make “a meaningful change [to the RBA] that lasts.”
Bipartisan agreement
Chalmers said he expected that some of the recommended changes to the RBA’s structure would require legislation to accomplish. He said the government had been working with the Opposition so that any major changes could be accomplished in a bipartisan way.
“This should be above politics,” Chalmers said.
Opposition Treasury spokesman Angus Taylor told The Australian Thursday that it was “enormously important Australia has an independent, credible and capable Reserve Bank.”
“It is essential that the review’s recommendations are agreeable for both major parties,” Taylor told the publication. “This will ensure certainty around the outcome of this review. With inflation at its highest level in decades, this is in the best interests of Australians.”
RBA faces criticism
The RBA has come under fire in recent months for launching an aggressive series of rate hikes last year after spending most of 2021 insisting that rates would likely not rise until 2024. The RBA admitted in November that the botched prediction was seen as a “broken promise” and caused the central bank “considerable reputational damage.”
Much of the ire has been directed at RBA Governor Philip Lowe, whose term expires in September. Chalmers has previously said that any decision on whether to reappoint Lowe for a second term would be made at that time, as usual – but the findings of the review would factor into that decision.
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