Comment: The outcome of the review into the Reserve Bank of Australia by no means represents an overhaul, and is not even all that material.
A Monetary Policy Board will be established by the middle of next year. This will mean the RBA operates with three boards, the other two being the main board with a governance role (including oversight of the bank’s balance sheet) and the Payments System Board.
As expected, the Monetary Policy Board is the centrepiece of the review’s tinkering with the apparatus of the bank. But frankly, one pack of well-informed specialists on macroeconomics and the like displacing another pack of well-informed big business CEOs deliberating on policy settings won’t, in the long run, make that much difference.
Nobody seems to be arguing (or could argue) that the past and present course of monetary policy would really have been very different had a Monetary Policy Board been in place these past few years.
And as for the 2022/23 resolve of the Reserve Bank to squash inflation in Australia once more and at seemingly any cost … well, this will be overthrown one day.
The governor will embrace the review’s call to hold more, and regular, media briefings.
Philip Lowe was pretty candid (as usual) and perhaps a little relieved in the media conference he held yesterday afternoon.
He and his team may be less relieved at the tenor of the Carolyn Wilkins-led review.
The head scratches begin with the first recommendation. Thankfully, this embraces the “dual monetary policy objectives of price stability and full employment” laid down when the Reserve Bank separated from Commonwealth Bank of Australia in 1959.
Then the review disrespects the RBA legacy by calling for “the ‘economic prosperity and welfare of the people of Australia now and in the future’ [to be made] an overarching purpose for the RBA rather than a separate objective for monetary policy”.
Nugget Coombes, the bank’s first governor, crafted this language way back in 1959 and had it chiselled in stone in the foyer of Martin Place.
The review then insists “the Government should remove the RBA’s power (in the Banking Act 1959) to determine the lending policy of banks”.
This macro intervention tool may be very old school. Maybe the quiet but prominent MMT belt of the Labor Party caucus will shoot this one down.
“I can never imagine it being used. It’s a relic and I support its removal,” Lowe said.
Lowe yesterday boiled down the RBA’s objective as “to make sure people have jobs and the economy can operate close to full employment”.
He tempered this by saying full employment was “in the low 4s”.
The numerous proposals centred on financial stability are no reaction to the US and European banking crises of recent months, but may be seen in that light.
The review is fair minded and critical where warranted on the recent monetary policy performance of the RBA, and interestingly singles out the preparatory work and then the design elements of the Term Funding Facility (established in early 2020) as flawed.
In a puzzling aside, the review calls for the RBA’s new chief operating officer (at deputy governor level) to, among other things, improve work on succession planning.
Puzzling because, as far as those outside the RBA know, the institution is an exemplar of succession planning, and long has been.
Beginning right with the graduate recruitment process, candidates are evaluated for their potential to progress all the way to the top.
There’s a line of future RBA governors in training and this is among the reasons I believe little will fundamentally change, other than US Fed style two day meetings of the planned eight meetings a year of the Monetary Policy Board, release of MPB voting records and (perhaps) a more contested manner in these board meetings.
One reason the Monetary Policy Board might make a bigger difference is that the review intends that the members of the board be more open about their views, with each expected to make occasional speeches, something that is rare now.
These disagreements will be more public, with each member expected to make speeches at times. Lowe referred to this when he said there could be more "noise".
The review’s opening observation was this:
“The RBA has high calibre, deeply committed people and a supportive and collegiate culture.”
Another reason nothing much will change.