Australia’s central bank will get a new specialist board to manage monetary policy that will be chaired by the governor but have independent expert members with more power over the setting of interest rates.
A review of the Reserve Bank of Australia (RBA) released on Thursday also recommended the central bank have a dual mandate of price stability and full employment, while maintaining its flexible inflation target of 2-3%.
Importantly for market confidence, the RBA’s Monetary Policy Board (MPB) would retain its independence from government, which is giving up its power to overrule decisions on rates.
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”.
“The recommendations in the report are about bolstering the independence of the Reserve Bank, not undermining that independence,” Chalmers said in a media conference.
RBA Governor Philip Lowe welcomed the proposed changes and said the current board would now consider how to implement some of the proposals including the frequency of policy meetings.
The full recommendations are due to be implemented by July next 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.
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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, labour 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.
Lowe has come in for much criticism after telling borrowers in 2021 that interest rates were unlikely to rise until 2024.
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%.
Lowe’s seven-year term ends in September and there is speculation it will not be extended as it was with his two predecessors.
Chalmers said a decision on Lowe’s appointment would be made in the middle of the year, but would not be drawn on whether he would remain as governor.
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