(Bloomberg) -- Australia’s central bank should set up an expert policy board, hold fewer meetings and give press conferences explaining its decisions, according to recommendations from an independent review that would align it with many global peers.
Treasurer Jim Chalmers announced Thursday in-principle agreement with all 51 recommendations, some of which will require changes to the Reserve Bank of Australia’s operating law. The review said the legislated changes should begin from July 1, 2024.
The report supported the existing flexible inflation-targeting regime while recommending the RBA’s financial stability role be legislated. Other proposals include eight monetary policy meetings rather than 11 and speeches on rate decisions by external board members.
The RBA will “work constructively” on the recommended legislative changes to ensure they help strengthen the bank, Governor Philip Lowe said in response to the review. The board will also consider the issue of the frequency of its gatherings and approach to communications “over coming meetings.”
This is the first review of a major central bank since the pandemic, with the outcomes likely to feed into upcoming inquiries at other international institutions. The RBA report was commissioned by the new Labor government and follows harsh criticism of the bank, ranging from its bungled exit from a yield target program to flawed rate guidance and poor communication.
In explaining the need for a separate policy board, the review found the current one provides only “limited challenge” to the views of top bank officials and that its skillset is “not matched to the complex and uncertain economic environment in which monetary policy will increasingly operate.”
The first major overhaul of the RBA since inflation targeting began in the early 1990s also found that external board members collectively have less economic and financial market expertise and spend less time on monetary policy than decision-making bodies at comparable central banks.
In response, it recommended the six external members have diverse economic backgrounds and have direct access to RBA staff. They will work part-time, equivalent to about one day a week, it showed.
It also recommended:
The treasury secretary remain on the policy-setting board
Five-yearly reviews of the monetary policy framework and tools
The RBA’s post-meeting statement contain unattributable votes
An updated Statement on the Conduct of Monetary Policy be agreed by the RBA board and government by the end of 2023
The recommended changes will “strengthen the bank’s governance and decision-making processes,” Governor Lowe said in a statement. “They will help us deal with the complex world in which we operate as we strive to promote the economic welfare of the Australian people.”
While a dual board structure is common at other central banks, such a change in Australia will require amending the RBA Act.
The review said the government should make any new appointments to the existing RBA board before July 1, 2024, with a view to supporting the continuity of decision making now and in the future by:
Making new appointments to the existing Reserve Bank Board on the basis these members would complete their terms
Asking other existing Reserve Bank Board members to continue their term on one of the new boards
Varying the terms of appointees to the new boards, as needed, to avoid bunching of future appointment dates.
The treasurer previously said he will take the review’s findings into account when deciding on the future of Governor Lowe, whose seven-year term expires in September. Lowe’s two predecessors received a three-year extension to take their total time at the helm to 10 years.
Chalmers has said he expects to announce a decision on Lowe around mid-year.
(Source: Yahoo Finance), all rights reserved by original source.
