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Australia's Central Bank to Establish New Monetary Policy Board

Australia's central bank, the Reserve Bank of Australia (RBA), is expected to create a new Monetary Policy Board (MPB) that will assign more responsibility for setting interest rates to independent expert members, thus diluting the bank's traditional authority over policy.

Reserve Bank of Australia
Reserve Bank of Australia

Proposed Reforms for the RBA

A 272-page review of the RBA revealed numerous proposed reforms, including a more focused policy mandate, fewer policy meetings, and a separate board for the bank's day-to-day operations.

Maintaining Independence and Inflation Target

The new MPB would maintain its independence from the government and continue to uphold a flexible inflation target of 2% to 3%.

Simplified Dual Mandate and Transparency

The proposed MPB would have a more straightforward dual mandate of price stability and full employment, aligning it with most other major central banks and aiming for increased policy transparency.

Treasurer Supports Review Recommendations

Australian Treasurer Jim Chalmers has agreed with all 51 recommendations made by the review, which aims to make the RBA "fit for the future."

Monetary Policy and Governance Board Split

The review suggests that the RBA's board should be divided into one for monetary policy and another for governance, with an external chair overseeing operations such as human resources, finance, and technology.

Monetary Policy Board Composition

The MPB would consist of the RBA governor and deputy governor, the Treasury Secretary, and six external members with expertise in macroeconomics, the financial system, labor markets, and the economy's supply side.

Reduced Meeting Frequency and Voting Records

The review recommends that the MPB meet eight times yearly instead of the current 11, which aligns more with international practice. An unattributable voting record, including any disagreements, would be published for the first time.

Impact on the RBA Governor's Power

The proposed changes would reduce the power of the RBA governor, making the central bank's policy more influenced by the external members of the MPB.

Lowe's Term and Future Appointment

RBA Governor Philip Lowe's term is set to end in September, and there is speculation that it may not be extended, as it was with his two predecessors. A decision on Lowe's appointment will be made later in the year.