Comment: Amid the calumnies of Australia’s election campaign, one of the barely discussed - and now bipartisan - policy priorities may hove into view over coming months. Or disappear.
This is the scheme for an inquiry sooner or later into that once seemingly unimpeachable icon of the national economic apparatus, the Reserve Bank of Australia.
This project appears to be a Liberal Party brainwave to begin with; not that the Treasurer, Josh Frydenberg, has had all that much to say on the topic.
It is the Opposition’s recent backing that is most curious.
Jim Chalmers, the Labor Party’s shadow treasurer, told the National Press Club in late April any inquiry "won't be an interrogation" but he shed no light on the process he may have in mind. Or his reasons.
Some candid context may help here, before a download on the likely themes to be explored by any inquiry.
In one conversation, I said the following to a possibly bemused assistant RBA governor. This was in mid to late 2021.
“I reckon you guys have been better than ever during the pandemic. I don’t know the full history all that well, but it may be you’ve done your best work ever.”
I meant it then and I still think this now. I had the central bank’s timely work on bond buying, yield curve control and the Term Funding Facility in mind, along with the pretty recent revival (however flawed) of closer attention to the full employment mandate.
I’m assured by colleagues inside this business and a range of long-term contacts that my assessment is a minority view.
The legislated mandate for the Reserve Bank, dating from 1959, is so simple Nugget Coombs, the legendary founding governor of the Reserve Bank, took care to see it was chiselled in stone in the foyer of the RBA tower at Martin Place.
Recently, the ‘welfare’ phrase in the third item in this mandate has been popping up in RBA speeches and media releases, where once it was a footnote at best.
But even idealists are unlikely to successfully define the meaning of this objective of contributing “to the economic prosperity and welfare of the people of Australia”, or how it’s meant to guide RBA operations and policy making.
Most embarrassingly, and rarely if ever noted in public debate, is that nobody at the Reserve Bank, or anywhere much, seems to give two figs for the (in)stability of the Australian currency.
As we all know, the substitute for a focus on the stability of the currency is a zealous targeting of price stability, loosely defined.
In the wake of the near criminal and socially devastating settings of monetary policy in the late 1980s, this has come to be defined by the now well-known target for inflation in Australia in a band ranging from 2 to 3 per cent.
This overlapped with the enthusiasm for Reserve Bank “independence”.
Central to controversies of the modern era around Reserve Bank performance has been the long running 'miss' by the RBA, up until very recent months, to reach this inflation target - by undershooting, both pre and during the Covid-19 pandemic.
Then there’s the unresolved (maybe unresolvable) debate around any implicit targeting of property prices.
If any aspect of the RBA’s work and methods deserves forensic scrutiny it has got to be its analysis of, and measurement of, unemployment and full employment.
It’s a little bit amazing, the manner in which full employment has been progressively restored to a near equivalence with inflation targeting as a nominal centrepiece of the Reserve Bank’s work over recent years. Not that they’ve been remotely successful on this front.
The labour underutilisation rate is a whopping 10.0 per cent (on yesterday’s ABS labour force data) representing 1.4 million people.
Philip Lowe, the RBA governor has tried to reframe understanding of the topic partially around “hours worked”. This is a relatively recent addition to the Australian Bureau of Statistics labour force data set, and rarely correlates with the rise and fall in the (dead dodgy) official unemployment rate, reported yesterday to be 3.9 per cent.
One competing publisher of analysis on the dimensions of unemployment scourge in Australia, Roy Morgan, polls on a simplistic question: Are you employed or unemployed? And this scrutineer records the real unemployment rate as 9.7 per cent.
Researching and writing this column suggests a simple conclusion.
Political interest in a review of the Reserve Bank of Australia may well wane following the weekend's election, and there won’t be any meaningful inquiry. Not a public one anyway.
It would just trample on too many vested interests and stir up too many controversies.
Any number of whack-jobs are bound to bombard any inquiry, alongside the well-informed, if insider-tainted minority.
Other financial regulators, most of all APRA, will have their handiwork and mission questioned at length. The RBA’s work on financial stability is dependent on the quality of APRA’s data collection, scrutiny and often timid, even captured, supervision.
Most likely, an RBA review will be tasked to avoid second-guessing monetary policy, now or in the past. Good luck with managing that.
In any event, as Lowe and the bank's board have made clear over recent weeks, there is plenty of self-criticism underway over the now baffling repeat declarations that the cash rate target was most unlikely to shift any time before 2024.
The politics, for the RBA and (probably) Anthony Albanese's newly elected federal government, are going to be rougher than rough over the next two to three years as the RBA responds with a degree of trepidation to the inflation breakout and frets at the threats to economic and financial stability from the consequent collapse in property prices as the official cash rate ploughs its way from 0.35 percent today to something in the vicinity of 2 per cent.
Most awkwardly: an inquiry may better publicise little-known truths, such as Wikileaks’ November 2010 disclosure of thousands of US State Department cables, more than one of which shows high ranking RBA blabbermouths spilling the beans on board ructions and the like.
Once, a top shelf name even divulged the recommendation to the RBA board to the American consul in Sydney one Monday evening before the monetary policy meeting. Yes, this really happened.
If this was well-telegraphed, it may be a case of no big deal. Or it may warrant great scrutiny, even if only for the principle of the thing.
You can only surmise these were not and are not isolated instances, and also that American diplomats are not the only beneficiaries of RBA indiscretions.
So, how common is insider trading around RBA policy and board processes? Definitely worth a periodic probe.
There are too many reputations and the careers of so many future RBA governors in training to spoil.
It would be a treat to follow and report on any inquiry into the Reserve Bank of Australia. It just feels too toxic to undertake anything, thus our guess: it won’t happen.