RBA boss Philip Lowe has welcomed the wide-ranging review of the central bank, admitting it “needs to change”.
The long-awaited independent review of the Reserve Bank, released on Thursday, called for a more transparent operation and recommended a specialist board with economic experts to set interest rates, who will need to take more individual responsibility for their decisions.
It made 51 recommendations, all of which have received in-principle support from the federal government.
“The Reserve Bank board’s composition and decision-making processes have not sufficiently enabled it to shape policy decisions, strategy, and the RBA’s underlying analysis and judgments,” the reviewers wrote.
Speaking after its released on Thursday, Dr Lowe said the RBA board would seek to implement the recommendations.
“As times change, we need to change too,” he said.
“The review will help us do that.”
The suite of reforms recommended by the three reviewers are intended to bolster the central bank’s leadership and decision-making and help prevent communication missteps – such as when Dr Lowe suggested interest rates would stay at record lows until 2024.
The RBA has since gone on to lift interest rates 10 times in as many months, starting in May 2022 and pausing only this month. The hikes have added thousands of dollars to annual mortgage payments.
Dr Lowe said, as one of nine board members and 1500 bank staff, he did not feel personally criticised.
“I certainly don’t feel personally slighted,” he said.
“As I have said on other occasions; our approach during the pandemic was to do every single thing we could do to help Australia.
“We were facing dire circumstances, we were all locked down and it was projected that the economy would be weak for a long period of time, so we had a really strong insurance mindset.”
The review makes no recommendation about the future of Dr Lowe, whose term ends later in 2023.
“This review is not a judgment on the past six months. We have looked back over three decades,” it states.
Dr Lowe said he would stay on at the RBA, if asked.
“It is entirely up to the government whether I consider to serve in this role after September,” he said.
“If I was asked to continue, I would. If I’m not asked to continue I will find another way to contribute to Australian society.”
Some have called for Dr Lowe’s resignation, but Treasurer Jim Chalmers said his reappointment would still be considered as normal.
Iain Ross and Elana Rubin will join the Reserve Bank board. Photos: SuppliedDr Chalmers used Thursday’s release to name two new board members, Iain Ross and Elana Rubin. They will replace outgoing members Wendy Craik and Mark Barnaba, neither of whom sought reappointment.
Dr Ross is a former Fair Work Commissioner and Ms Rubin a former head of Australian Super.
“No one knows more today, I think, about the interaction of the broader economic settings and the wages and living standards of Australian workers than someone like Iain Ross,” Dr Chalmers said.
“Alana Rubin brings a quite impressive array of experience to the board as well.”
Dr Ross, Ms Rubin and existing members will be allocated across the two new boards, provided the two-board system is legislated and finalised by the middle of 2024.
Dr Chalmers said the recommendations and the government’s response were about ensuring Australia’s top economic institution had the best frameworks, objectives, processes and expertise.
“[The review] found that Australia’s monetary policy framework has contributed to good economic outcomes over the past three decades but identified a number of opportunities to strengthen it,” he said.
Opposition treasury spokesman Angus Taylor said the Coalition planned to be as bipartisan as possible and the direction of the review had been positive.
“Families are feeling the impacts of higher prices and rising interest rates every day,” he said.
“Along with strong economic management, a strong Reserve Bank is essential to addressing the inflation that is driving higher prices.”
As well as fewer meetings to free up time for strategic decision-making, the reviewers recommended creating more opportunities to hear from RBA staff.
Their investigation uncovered a culture of staff members pressured to align with the views of their direct managers and senior leaders, creating a risk of “groupthink” on key issues.
The reviewers were mostly happy with the framework underpinning the bank’s monetary policy strategy, including its flexible inflation target of 2-3 per cent, but called for some tweaks. They included a clearer explanation of the interaction between its two objectives of pricing stability and full employment.
The review called for the central bank’s independence to be insulated from the government of the day. That would include abolishing the power of the government to override RBA decisions.
All of those suggestions have the government’s in-principle stamp of approval.
The new legislation will seek a strengthened mandate for the institution, and pave the way for the two-board structure.
-with AAP
