Reserve Bank to get major shakeup to make it ‘fit for the future’

Federal Treasurer Jim Chalmers has announced the government has accepted in principle all the recommendations from a review into the Reserve Bank.

The 294-page review entitled ‘An RBA fit for the future’ was authored by Professor Renee Fry-McKibbin from the ANU’s Crawford School of Public Policy; secretary for Public Sector Reform Dr Gordon de Brouwer; and Professor Carolyn Wilkins, a senior research scholar at Princeton University’s Griswold Center for Economic Policy.

The assessment was announced on 20 July 2022 by Treasurer Chalmers, who said it was the first wide-ranging review of the RBA since current monetary policy arrangements were put in place in the early 1990s.

Labelled as independent, transparent, and wide‑ranging, the review sought the views of domestic and global experts and members of the public. Its scope was to consider the RBA’s objectives, policy implementation, governance process and public communications, and was also tasked to consider the relationship between monetary, fiscal, and macroprudential policy settings.

In total, the review contains 14 main and 51 sub-recommendations, including: affirming the RBA’s independence and clarifying its statutory objectives; promoting a better understanding of fiscal and monetary policy; instituting regular reviews of the monetary policy; legislating the RBA’s financial stability role; appointing an expert Monetary Policy Board; strengthening transparency and accountability; and establishing a Governance Board.

Arguably the biggest change is the addition of the Governance Board which will have input into setting interest rates.

In releasing the review, Treasurer Chalmers said he expected the recommended changes to be implemented by the end of the 2023/24 financial year.

“We’re confident we have given ourselves enough time to bed down the recommendations of this review,” he said. “There’s a legislative part of this, there’s a statement on the conduct of monetary policy and there’s other work to do as well.

“We’ll do that work, ideally have it all sorted by 1 July 2024. And we’ll do that in consultation with collaboration with the parliament and the Reserve Bank.”

Mr Chalmers said one of the recommendations was to unwind the Government’s ability to overturn decisions by the RBA. “It hasn’t been used before, and I can’t imagine a situation where I would contemplate using it,” he said. “One of the priorities here is a more independent Reserve Bank, we think we can overturn that part of the legislation.”

When asked whether the review’s recommendation that the six external members of the board included someone with industrial relations experience was a call to give unions a voice, Mr Chalmers said he intended to ensure the interests of workers were front and centre.

“I think workers do deserve a voice around the Reserve Bank table, and I think (Fair Work Commision president) Mr Ross is satisfying an important objective which is to make sure that the wages and living standards of ordinary workers are considered and contemplated as a Reserve Bank takes the decisions,” he said.

“We don’t want there to be any element whatsoever of politicisation when it comes to the Reserve Bank. And the changes recommended by the review panel are about making the Reserve Bank more independent, not less, but also where there’s areas where that is unclear, to clarify that.”

RBA Governor Philip Lowe welcomed the review’s conclusions. “I would like to … thank the review panel for their thorough and excellent work,” he said in a statement.

“The review has been timely, with the RBA facing an increasingly complex world, and a complex operating environment. The recommendations in the review will help us deal with this more complex world, and they will strengthen the monetary policy process and the governments of the RBA.”

Mr Chalmers suggested Mr Lowe would likely serve out his current term as governor, but wouldn’t be drawn on his future after that.

“The appointment is in September,” he said. “In the ordinary course of events the government would turn its mind to that appointment closer to the middle of the year and that is my intention.

“I have said for some time that the sequence, the right sequence is to release this with the government’s initial reviews and contemplate the governor’s appointment closer to the middle of the year and that is my intention.

“It is no small thing for the Reserve Bank Governor to engage in a process like this,” he said. “It can be uncomfortable. I want to acknowledge and thank Phil Lowe for the way he has engaged with me and the way he has engaged with the review over some time.”

Mr Chalmers also thanked his Opposition counterpart. “I want to acknowledge Angus Taylor,” he said. “Angus and I have our differences over a range of policy areas but he has engaged in this process in a considered way and in a cooperative way.”

Original Article published by Andrew McLaughlin on Riotact.