Australia’s central bank faces a potential overhaul of its interest rate-setting board that may result in more monetary policy experts and fewer business people, an independent review suggested.
(Bloomberg) — Australia’s central bank faces a potential overhaul of its interest rate-setting board that may result in more monetary policy experts and fewer business people, an independent review suggested.
The three-person panel is also considering whether the votes of individual Reserve Bank directors should be disclosed or dissenting votes released without divulging names, a 16-page issues paper released Thursday showed.
“This review is an important opportunity to evaluate Australia’s monetary policy arrangements,” panelists Carolyn Wilkins, Renee Fry-McKibbin and Gordon de Brouwer wrote in the paper’s preface.
The RBA board’s composition has drawn criticism as it only includes one economist among six independent directors, leaving them ill-equipped to push back against bank views. Governor Philip Lowe, Deputy Governor Michele Bullock and Treasury Secretary Steven Kennedy round out the board, and only Kennedy has access to resources to challenge the bank.
The RBA also faced criticism for failing to meet its 2-3% inflation target prior to the pandemic, then for sticking with excessively easy policy as Australia emerged from Covid and inflation threatened the global economy.
The central bank kept borrowing costs at a record low 0.1% until May and since then has delivered its sharpest tightening cycle in a generation, bringing the cash rate to 2.35% this month.
“The Terms of Reference for this Review give us the opportunity to make broad‑ranging recommendations on the RBA’s objectives and mandate, the interaction between monetary, fiscal and macroprudential policy, as well as the way the RBA operates: including its governance, culture, and management,” the three reviewers wrote.
Formal submissions for the review opened Tuesday and are due by Oct. 31.
Some of the issues for discussion include:
- What appointments process, composition, professional experience, qualifications and tenure of the RBA board is most appropriate for fostering internal deliberation and effective decision making?
- What communication practices would best promote accountability, transparency and support public understanding of the RBA’s policy strategy and decisions?
- What lessons can be drawn from the RBA’s performance against its objectives to strengthen the future decisions and implementation of monetary policy?
- What monetary policy tools should the RBA use in pursuit of its monetary policy objectives, and how can it use them most effectively in the future?
Past inquiries at the Federal Reserve and the European Central Bank explored their approaches to inflation, resulting in more scope for them to allow prices to run beyond targets. Australia currently operates a flexible inflation target.
Lowe has welcomed the review, which is expected to deliver a final report in March — just six months before his seven-year term expires.
The issues paper also cited climate change and its impact in interest rate settings over the medium term as an area to explore
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
