Stephen Miller
From a market perspective the main takeout from the review is the establishment of a dual board system: one that makes decisions on monetary policy (setting of the policy rate) and another that oversees the central bank’s governance.
It is envisaged that Board members will take on more joint responsibility and accountability with the governor for the bank and its decisions rather than the current arrangement which vests considerable unilateral authority with the Governor.
The Australian Financial Review reports that there will also be a new statement on the conduct of monetary policy with the Government that will involve the whole policy Board which represents a broadening of the arrangements that have applied in the past.
It is expected that the Government will retain support for the inflation-targeting framework and the independence of the central bank, which is also a positive compared to alternative models. That independence should encompass members of the policy-setting Board communicating on how monetary policy reacts / responds to other policies: fiscal and structural, even if that proves inconvenient for the government of the day.
It is clear that the arrangements attaching to the RBA and its relationship with the Government needed updating. By and large the mooted changes are welcome. While the RBA as an institution has served the country well over the last three decades, where there have been problems it can largely be put down to a somewhat insular culture that saw its deliberations take place in a silo environment somewhat removed from outside sources of influence.
The establishment of a separate “expert” policy-setting Board from outside the RBA and with joint accountability with the Governor will mitigate the negatives that arise from that. It will bring alternative views and more debate around policy and how it is communicated. That will go some way to the sorts of mistakes in policy and communication under the tenure of Governor Lowe. To be clear, the composition of the Board should represent complementary skills: a mix of people with academic skills, public policy experience and financial market experience.
But there are no guarantees. This model is akin to those attaching to the Bank of Canada (which after a stumbling start has made a decent fist of grappling with the recent inflation breakout) and the Bank of England (which has a more indifferent record).