Yahoo Finance RBA review: Huge change to monthly rate rises
The government has previously said it would adopt the recommendations of the review.
Aussies have become accustomed to the dreaded monthly rate rise over the past year, but that could be about to change.
A review into the Reserve Bank of Australia (RBA) has suggested a new board meet only eight times a year to make a decision on official interest rate movements - but there's a catch.
The change would mean movements in the official interest rate would be less frequent, but could mean any changes might be larger. This is a major change as the board currently meets 11 times a year.
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This change would mean movements in the official interest rate would be less frequent - but could mean any changes might be larger.
For example, the RBA generally hikes (or cuts) interest rates by 0.25 per cent at a time. Changes of 0.5 per cent are considered ‘double-whammy’ hikes because they are the equivalent of delivering two hikes in one go.
Should inflation grow as fast as it has been recently, the new monetary policy board may deliver more of these double-whammy hikes to get it back under control, because they would no longer be changing the interest rate each month.
On the flip side, the review said moving to fewer meetings per year would give the new board more time and data to make informed decisions.
“The monetary policy board should move to eight monetary policy meetings a year to allow more time to consider the issues and engage with RBA staff within each meeting cycle,” it said.
What are some of the other changes?
The review also suggested that interest rate decisions should be more transparent, recommending that the RBA hold a press conference after each meeting.
This is not a new idea. The head of the US central bank gives a statement after their interest rate decisions too.
The review also suggested the bank should appoint a chief communications officer to “strengthen its strategic communications”.
And more reviews may be on the cards, with the review saying there should be five-yearly reviews of the RBA’s monetary policy framework and policy tools.
When will the changes happen?
Treasurer Jim Chalmers said the government and the RBA are working together to implement all 51 recommendations and he hopes they will all be implemented by mid-2024.
"I want to work with the parliament including the Opposition, the stakeholders and regulators, the Reserve Bank and its board, and the broader Australian community to hand down these recommendations because this is all about ensuring we have the right economic institutions and the right framework in place to support a better future for all Australians," Chalmers said.
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