The Governance Board of the Reserve Bank of Australia will play a high level role in formulating the parameters of monetary policy in conjunction with the Monetary Policy Board.
In a Memorandum of Understanding among the Monetary Policy Board, Payments System Board, Governance Board and RBA Executive worked out in April, but published only late last week, the RBA makes clear that the Governance Board “will routinely consider risks to the Bank that arise from their decisions, including those associated with the size and/or composition of the Bank’s balance sheet.”
This seems appropriate but hasn’t been articulated before.
The Reserve Bank balance sheet ballooned to unprecedented levels as the then RBA board adopted unorthodox policy measures, such as bond buying, yield curve control and the Term Funding Facility, in response to the Covid-19 pandemic.
The Governance Board “may communicate any observations it has about such matters to the policy boards” the RBA said.
“In such circumstances, the policy boards will consider carefully the Governance Board’s concerns and any recommendations it provides, while not being bound to make any changes to their frameworks or policies.
“They will report back to the Governance Board on which recommendations they adopt and which they do not (in the latter case, providing reasons).”
Each board “plays an important and complementary role in managing risks.
“The Governance Board may communicate any observations it has about such matters to the policy boards. In such circumstances, the policy boards will consider carefully the Governance Board’s concerns and any recommendations it provides, while not being bound to make any changes to their frameworks or policies.
“They will report back to the Governance Board on which recommendations they adopt and which they do not (in the latter case, providing reasons).”
Michele Bullock, the RBA governor, will work out and smooth over any differences between the boards.