Yahoo Finance RBA review: Major shake-up for central bank
The government previously said it would adopt all the recommendations.
The Reserve Bank of Australia (RBA) is in for one of the biggest shake-ups in its history, following the completion of a government review.
Treasurer Jim Chalmers will present the review's 51 recommendations today, but reports have already revealed what the biggest change will be.
Chalmers said the review was about “renewing, revitalising and building confidence in the Reserve Bank”. This would be the first major change for the central bank since the 1990s.
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RBA board to be split in two
Yes, the RBA could soon have two boards; one for monetary policy and one for governance. This would be done so decision-making and governance arrangements could be more effective.
Some of the other recommendations would also require work from the Council of Financial Regulators, as well as the creation of a new Statement on the Conduct of Monetary Policy.
Chalmers will release the report and give the government's first response to the 51 recommendations.
Why was there a review?
The review comes at a time when the RBA has been criticised for not doing more, sooner, to curb inflation in Australia, resulting in 10 consecutive interest rate hikes.
Many economists took aim at the bank for not anticipating higher inflation was on the horizon and not increasing the cash rate from record lows before it took hold.
For example, Deloitte Access Economics’ latest Business Outlook report said the two 0.25 per cent hikes in February and March this year were “unnecessary” and meant Australia was now facing “the weakest rate of economic growth outside the pandemic since the recession of the early 1990s”.
On the flip side, RBA governor Philip Lowe has said many times that the bank has only ever acted on the information it had available at the time, meaning it has not acted in anticipation of events.
The review consulted with economic experts from Australia and overseas, as well as former RBA board members.
Chalmers said the task was critical, given the range of long-term challenges facing the national economy.
"The review will consider the RBA's objectives, mandate, the interaction between monetary, fiscal and macroprudential policy, its governance, culture, operations and more," he said.
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