Australia central bank to get new rate-setting board under review recommendations
SYDNEY – An independent review of the Reserve Bank of Australia (RBA) has recommended creating a specialist board to manage monetary policy that would be chaired by the governor and have a dual mandate of price stability and full employment.
The central bank should keep its flexible inflation target of 2-3 percent but aim to return inflation to the mid-point rather than average it over time. Importantly for market confidence, the RBA’s Monetary Policy Board (MPB) would retain its independence from government control.
Treasurer Jim Chalmers indicated in-principle agreement to all 51 of the recommendations made by the review which he set up last July with an eye to making the RBA “fit for the future”.
Chalmers is also due to announce two new external board members for the RBA later on Thursday, to replace members whose terms are expiring this year.
The review recommended the RBA’s current single board be split into one for monetary policy and one for governance with an external chair that would oversee operations such as human resources, finance, risk management and technology.
The MPB would comprise the governor and deputy governor of the RBA, the Treasury Secretary and six external members with expertise of open-economy macroeconomics, the financial system, labor markets and the supply side of the economy.
The review recommended the MPB meet eight times a year, instead of the current 11 meetings, and an unattributable record of voting should be published in the post-meeting statement with minutes including any points of disagreement.
External members would be appointed for a term of five years, with the possibility of reappointment for up to one year.
Members should be expected to discuss the Board’s decisions in public from time to time, and statements released after policy meetings should be agreed by them and published in their name, the review said.
The review said the RBA should better explain its policy choices through regular press conferences and increasing the amount of information available about deliberations, strategy, and its forecasts.
MPB members should be more accountable for their role in setting monetary policy, the review said.
Current RBA Governor Philip Lowe has come in for much criticism after telling borrowers in 2021 that interest rates were unlikely to rise until 2024.
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Instead, inflation surged past expectations and forced the bank to start an aggressive tightening cycle in May last year, lifting rates by a total 350 basis points to 3.6 percent.
Lowe’s seven-year term ends in September and there is speculation it will not be extended as it was with his two predecessors.
