The Reserve Bank of Australia is preparing to shake up its operations across monetary policy and internal governance and communications, following the release of review papers today.
RBA said it welcomed the Review of the Reserve Bank, which covers the Bank’s objectives and responsibilities, its framework for monetary policy and its internal operations.
The review recommended the establishment of separate boards for monetary policy and governance of the Bank. This will require changes to the Reserve Bank Act 1959, which RBA said is a matter for the Australian Government.
Speaking at a press conference today, Governor Philip Lowe admitted there is much less oversight of how he discharges his responsibilities to manage the RBA.
“I think it's true to say that, from a number of perspectives, the current oversight arrangements of me as the governor for managing the bank fall short of contemporary standards,” he said. “So the proposed changes would help address this, and they will help me as governor manage the bank and the many complex and important functions we undertake.”
Lowe said the splitting of the boards will improve oversight by having separate people whose sole job is monetary policy.
“I very much welcome the conclusion that the Board should include people with diverse perspectives and knowledge and who have experienced in decision-making under uncertainty.”
The Review of the Reserve Bank report proposed dual monetary policy objectives of price stability and full employment. It also added that the “economic prosperity and welfare of Australians now and in the future should be an overall purpose for the institution.”
“That becomes the overarching purpose of the bank,” Lowe said. “At the moment, we're trying to generate a return of inflation of 2-3%. The ultimate objective there is to make sure that people have jobs, and the country can operate close to full employment.
“In the short run, there's a trade-off, obviously. But in the long run, they're perfectly consistent and the weighting that's given to each of them in decision-making is something that we can't determine from meeting to meeting. But they’re not inconsistent with one another.”
The review made other recommendations regarding how the Board works, including the frequency of meetings and the Bank’s approach to communication. The Board said it will consider these issues over coming meetings and develop and implement a new set of arrangements.
Lowe said this will include the board receiving a more detailed briefing materials on economic modelling, research and monetary policy, as well as the appointment of a chief operating officer.
“It also recommends closer interactions between the board members and the bank staff in the expectation that this will support a stronger culture of challenge and debate within the RBA,” Lowe said.
“The recommended changes will build on that strong foundation and strengthen the Bank’s governance and decision-making processes.
“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.”
The Review of the RBA was announced by the Treasurer of Australia Jim Chalmers in July 2022.
Lowe said the Board will publish a detailed response to the review later this year.