Change is on the horizon for Australia’s Reserve Bank, with a once-in-a-generation external review having recently been handed to the government. The panel is likely to recommend that interest rate setting should be delegated to those with greater economic expertise, and that the Governor should conduct regular press conferences in line with global norms. Such a shift could potentially have a major impact on the country’s economic and social life, and the outcomes of the review should not be underestimated.
The Reserve Bank of Australia (RBA) has been widely regarded for its record of economic management, but scrutiny of its internal personnel and process has lagged behind. Critics suggest that the lack of appointees with real monetary expertise on the RBA board gives Governor Phillip Lowe too much sway. Comparatively, the Federal Open Market Committee and the conclaves of the Bank of England and Bank of Japan record the votes of members, allowing investors some insight into points of tension and dissent.
In addition to a more experienced board, the review is expected to suggest the RBA regulars brief the media to explain decisions taken. This basic step would align the central bank with those around the world. The RBA Governor has pointed out that a lot of chat does not necessarily add clarity – something that may be true – but it would certainly be beneficial to build an institutionalized practice. Governor Lowe does currently make a practice of giving speeches soon after board meetings and taking questions, however this is not automatic.
Though it may sound encouraging, a bi-partisan approach to this review outlined by the opposition could yet be overturned by the finer details or the politics of the hour. Any legislative changes to the RBA may be tricky as the ruling Australian Labor Party lacks a majority in the Senate, and the Greens have already called for the replacement of Lowe whose term ends in September – something that Lowe himself has said he would welcome.
It may be easy to observe the antagonism directed at Lowe, and to forget that many central banks have had to undertake tightening campaigns in recent years – the RBA being among them. Yet many argue that Australia has been somewhat complacent and not evolved in this area for some time, and should have asked for more from its premier institutions besides the RBA – institutions that have enjoyed low inflation and borrowing rates since the early 1990s. This lack of real evolution may be the source of some of the criticism Lowe and the RBA endure today.
Though an independent review of the RBA comes only once in a generation, it is important to judge its potential impact on the country’s economic and social life lest Australians underestimate it. While such reviews become a part of global central banking protocol, it is ultimately up to the citizens of Australia to demand a more qualified, accountable, and transparent RBA.