The upcoming makeover of the Reserve Bank of Australia will do little to ease the immediate burden on household budgets but will hopefully set it up to make fewer mistakes in the future.
A three-person review panel has recommended a suite of reforms to boost the central bank’s leadership and decision-making after its governor was criticised for wrongly suggesting interest rates would stay at record lows until 2024.
Since that guidance was given two years ago, rates have risen rapidly in response to elevated inflation, starting with the first hike in May last year.
“The Reserve Bank board’s composition and decision-making processes have not sufficiently enabled it to shape policy decisions, strategy, and the RBA’s underlying analysis and judgments,” the review report released on Thursday said.
Central to the panel’s recommendations is the creation of two separate boards, one responsible for governance and the other for monetary policy, which sets interest rates.
The review also called for governor-led press conferences after monetary policy meetings, with board members occasionally speaking publicly on the decisions taken.
Fewer board meetings were also recommended, trimming the number held each year to eight from 11, to better align interest rate decisions with reliable economic data while giving members more time to mull the options.
The board should also release an anonymised tally of which way members voted, to provide transparency without too much emphasis on individuals.
The review panel was mostly happy with the framework underpinning the bank’s monetary policy strategy, including its flexible inflation target band of two to three per cent.
But it also called for some tweaks, to give the central bank slightly less wiggle room when it came to returning inflation to target and maintaining full employment.
The report’s 51 recommendations have the in-principle support of the federal Labor government, which will legislate to create the two boards.
The opposition has already signalled its willingness to back to back the reforms.
Deloitte Access Economics head Pradeep Philip said while the proposed structural changes will be of little relevance to households and businesses struggling with rising interest rates and inflationary pressures, they would lead to a stronger and more stable economy in the long run.
“(The) review will go a long way towards improving the analysis and decision-making of the RBA and improve its operations and governance,” he told AAP.
Its decision-making was already pretty good quality when compared to its international counterparts, Mr Philip said, adding that structural reforms could only do so much.
Treasurer Jim Chalmers said the goal was to ensure Australia’s top economic institution had the best frameworks, objectives, processes and expertise.
Dr Chalmers stressed it wasn’t about taking shots at anyone and acknowledged Governor Philip Lowe had a “difficult job”.
Some have called for his resignation based on the interest rate call made during the pandemic, which some households took as an incentive to take out large mortgages.
Dr Lowe’s current term expires in September and he confirmed on Thursday he’s keen to continue in the top job to help bed down the forthcoming changes, which the treasurer wants completed by mid-2024.
Opposition treasury spokesman Angus Taylor said the coalition planned to be as bipartisan as possible and that the direction of the review had been positive.
“There have been great challenges in the forecasting and guidance has been given by the Reserve Bank and many households and businesses have paid a real price for those errors,” he said on Thursday.
“It’s important that everything be done, as much as possible at least, to prevent that happening again in the future.”
© AAP 2023
