RBA to undergo biggest shake-up in decades
More than 50 recommendations stemming from a major review into the RBA will transform the central bank, including the establishment of separate boards to set interest rates and oversee governance.
The Reserve Bank of Australia (RBA) is to undergo its most significant restructure in decades, with the existing board structure no longer in charge of setting interest rates.
In the biggest overhaul to the central bank since the 1993 introduction of an inflation target and assigning it formal independence from government influence, the existing board will be divided into two.
The split will see special panel appointed to determine interest rates and another set up to deal with governance, currency issuance and other monetary policy tasks.
A 294-page review by a three-person panel delivered 51 recommendations to reform the RBA, all of which have been accepted in principle by the Anthony Albanese Labor government.
Some of the changes will require legislative changes, while others can be incorporated by the RBA.
The RBA’s political autonomy will remain unaffected. The review also supported the target range for inflation of 2-3 per cent.
The review was led by the Australian National University professor Renée Fry‑McKibbin and included Carolyn Wilkins, an external member of the Bank of England’s financial policy committee and ex-deputy governor of the Bank of Canada, and Gordon de Brouwer, a secretary for public sector reform.
RBA governor welcomes review outcomes
In a media briefing on Thursday (20 April), RBA governor Philip Lowe managed to avoid uttering the term ‘interest rates’ but welcomed the conclusions of the review.
“A major change recommended by the Panel is the establishment of separate boards for monetary policy and the governance of the Bank,” Mr Lowe said.
“I have thought for some time that there was a strong case to strengthen the governance of the RBA as an institution.
“The RBA is responsible for many nationally important functions in addition to monetary policy, including being the banker to the government, the operator of critically important payments infrastructure, the printer of banknotes and passports, and the manager of Australia’s foreign exchange reserves, so there is a lot more than just monetary policy.”
He pointed out that while interest rate, or monetary policy, decisions were closely scrutinised, other aspects of RBA operations had not been monitored as closely as was appropriate.
“As you know, there is great deal of public visibility of, and commentary about, our monetary policy decisions, but there is much less oversight of how I discharge my responsibilities to manage the RBA.
“From a number of perspectives, current oversight arrangements fall short of contemporary standards.
“The proposed changes would address this and help the Governor manage the Bank and its many functions.”
One of the key recommendations of the review was for more experts in areas such as labour markets and open-economy macroeconomics to be appointed to the monetary policy board.
Jim Chalmers used a press conference to emphasise the importance of having a diverse board with corporate experience, before announcing that Fair Work Commission President, Iain Ross, and former AustralianSuper Chair, Elana Rubin, would be appointed to the RBA Board.
“They will help ensure the Board is well equipped to deliver monetary policy in an increasingly complex and uncertain environment and to implement the recommendations of the RBA review,” he said.
Existing Board members were to serve out their current terms before being allocated to one of the two new boards.
Difficult year for RBA
The report comes after a difficult year for the RBA and Mr Lowe, who received a large measure of criticism for the ten successive interest rate hikes after having said at the peak of the pandemic that rates would not move until “at least 2024”.
Many borrowers who made real estate investment decisions based on these comments are now confronting huge increases to their mortgage repayments.
Mr Lowe’s term ends in September but he has indicated he would serve another term if the government approved of his performance.
The review into the RBA received bipartisan political support.
Shadow Treasurer Angus Taylor said that with inflation at its highest level in about 30 years, confidence in the central bank was crucial.
“The recommendations of the review will clarify the Reserve Bank’s monetary policy role, strengthen its governance arrangements, improve the transparency of its decision-making, and deepen its economic expertise,” Taylor said.
The changes are expected to be implemented by 1 July 2024.