Treasury releases RBA review, accepts drastic changes

The Albanese government has reportedly accepted all 51 recommendations outlined in the newly released An RBA fit for the future report, informed by a review of the Reserve Bank of Australia (RBA). 

Launched in July 2022, the review was designed to ensure Australia’s monetary policy arrangements and the operations of the RBA “continue to support strong macroeconomic outcomes for Australia in a complex and continuously evolving landscape”.

The review has reaffirmed support for the independence of the central bank and the current inflation-targeting framework.

However, recommendations include a major overhaul of the RBA’s decision-making powers, with a call to establish a second RBA board.

Namely, recommendation 8 sets out that the government should constitute a monetary policy board with responsibility for monetary policy decisions and oversight of the RBA’s contribution to financial system stability (except payments system policy), but not broader corporate governance.

Corporate governance would be handled by a separate governance board that would be responsible for overseeing the management of the bank.

According to the recommendation, the monetary policy board would comprise the governor, deputy governor, Treasury secretary, and six external members, with the governor as chair. The external members would also influence monetary policy settings through expertise in areas such as open-economy macroeconomics, the financial system, labour markets or the supply side of the economy and in the context of decision making under uncertainty. 

The review also recommends that the appointment process for external members of the monetary board be made “more transparent and open”.

“Positions should be open and advertised for expressions of interest, including to international applicants. The selection criteria should be published,” the report says.

“A specialised recruitment firm could be engaged to assist the recruitment process. The pool of potential candidates should not be limited to those who responded to the expression of interest process,” it continues.

Meetings under scrutiny 

Under recommendation 9, the review recommends that the board should meet eight rather than 11 times a year to allow for “more in-depth discussions” including of the forecasts, strategy, and other monetary policy issues.

“The review heard mixed views about the frequency of meetings, including among current and former Reserve Bank board members and senior RBA staff members. Financial market participants and professional economists were largely in favour of the monthly schedule,” the report says.

“Academic experts, international central bankers and RBA staff mostly favoured holding eight meetings a year. The desire of RBA staff to have fewer meetings was not based on a desire to have ‘less work’, but rather a desire to have greater scope to do deeper and better preparatory work for each meeting, including more internal policy research.”

Priority recommendations

Of the recommendations that do not require legislation, the review suggests that the RBA’s implementation should prioritise progressing three recommendations this year.

These include:

• Improve processes to support deeper consideration of monetary policy decisions, strategy, and research to strengthen the monetary policy decision-making process, including changing the frequency of meetings and the process within the meeting cycle, and increasing Reserve Bank board member access to the RBA staff.
• Strengthen monetary policy transparency and accountability, including press conferences, having the Reserve Bank board approve the statement released after each board meeting and enhancing the RBA’s strategic communications capability.
• Strengthen the RBA’s management, culture, and operations, including appointing a chief operating officer, implementing mandatory leadership training, assessing leaders on their promotion of challenge and debate, and establishing a monetary policy strategy team.

Treasurer responds

Commenting on the review, Treasurer Jim Chalmers said the Albanese government “agrees in‑principle” with all the review’s recommendations and “will now work with the RBA, the parliament, and other stakeholders to implement them”.

“Australia faces a complex and rapidly changing environment, and we need the most effective central bank and monetary policy framework to meet current and future economic challenges,” Mr Chalmers said. 

He flagged that “given the importance of the RBA’s independence”, bipartisan support “will be critical” to implementing some of the recommendations through legislation.

The Treasurer further added that the government intends to introduce legislation to reinforce the independence of the RBA in the operation of monetary policy; strengthen the RBA’s mandate and clarify that Australia’s monetary policy framework will have dual objectives of price stability and full employment; and establish a separate monetary policy board and governance board.