Yahoo Finance RBA review: The good, the bad and the ugly
The RBA will undergo a major overhaul, which is expected to be completed by mid-2024.
😃 The Good: Fewer interest rate hikes
😔 The Bad: More noise
😡 The Ugly:Nothing much will change
The Reserve Bank (RBA) review has recommended sweeping changes to how the central bank operates, after Aussies were led to believe interest rates wouldn’t rise until 2024.
Treasurer Jim Chalmers said the government would be implementing all 51 recommendations.
So, what’s changing and how will that affect you?
Interest rate changes will only happen eight times a year.
That’s right! No longer will Aussie borrowers have to deal with the monthly interest rate budget blowout.
The review suggested the RBA fall in line with other central banks and only meet eight times a year, instead of 11.
The 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.
But, if inflation is growing at the same pace we have recently seen, the RBA may deliver more double-whammy hikes to get it under control more quickly.
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.
MORE GOOD:
New additions to the board could confuse things even more.
You’ve no doubt heard the saying ‘too many cooks in the kitchen’? Well, chief economist at Betashares David Bassanese believes some of the changes could lead to exactly that.
One of the other recommendations from the review was to appoint six external members to a new monetary policy board - which would focus its attention squarely on changes to the interest rate.
These new board members would be “experts on economics, labour markets and financial markets”, which Bassanese said could separate the board from what was actually happening “on the ground”.
“To the extent more board members will come from academia, there is a greater risk that policy will be set in an ivory tower, devoid of real-world appreciation of the facts on the ground,” he said.
“It’s also far from clear that academic economists, even so-called monetary economists, have any superior ability to form judgements on the correct level of interest rates.
“What Australia least needs are half a dozen self-important monetary academics incessantly squawking in public about what should or should not be done with interest rates. This would add further unnecessary noise into an already-noisy financial system.”
MORE BAD:
RBA's 'unnecessary' move sparks warning for Aussies: 'Tempting fate'
430,000 mortgage holders admit to missing a payment: ‘Things could get worse’
Will these changes actually make a difference?
RBA governor Philip Lowe was asked at a press conference following the release of the review whether or not things would look any different now if the recommendations had been adopted earlier. His answer was, essentially, no.
“Most of the issues are driven by global developments. No matter what structure you have at your central bank, you're dealing with the same issues,” Lowe said.
“I think the changes are positive. But I wouldn't overestimate how they will fundamentally change how the economy works. We're not suddenly going to be delivered 2.5 per cent inflation every year. It's an improvement but we've got to be realistic here."
MORE UGLY:
Big banks’ surprise interest rate calls: ‘Last thing the RBA wants’
$17 billion: Aussies turn to plastic under weight of RBA hikes
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