April 5, 2023
AMW – An update on the RBA review
Late on Friday, the Treasurer formally received the independent review into the RBA, which has 51 recommendations.
An update on the RBA review
- Late on Friday, the Treasurer formally received the independent review into the RBA, which has 51 recommendations. Treasurer Chalmers has said he will release the report together with initial reactions in April, before the Federal Budget on 9 May. We will have to wait for the full report for detail of the recommendations and what will be taken forward. In this Weekly, we update what we know so far and what media are reporting.
- The Review itself was set up to be expansive and covered four themes within its terms of reference: Monetary policy arrangements; Performance against objectives; Governance structures; and Institution (e.g. culture, leadership, and recruitment practices). The Treasurer has also been forward about his openness to meaningful change, calling the Review an opportunity to ‘renovate’ the RBA.
- Press reports affirm our view that a change to the level of the 2-3% inflation target is unlikely, but tweaks could occur. That could be in the form of a clarification to the current ‘on average, over time’, or a more explicit statement of how possible conflicts with full employment or financial stability should be approached.
- For an RBA currently leaning on the flexibility in its inflation target, that could have implications for what is viewed as a ‘reasonable time’ for inflation to return to 2-3%.
- Expect changes to the Board, either through a separate specialist committee to decide monetary policy, or a change to how Board members are appointed, depending on appetite to open up the RBA Act. Press report the Liberal/National Opposition is supportive of appointing more monetary policy experts to a specialist committee.
- A shift in the makeup of decision makers would also likely mean points of disagreement can be expressed publicly.
So where to from here? After the report is released in the next couple of weeks, some changes could happen very quickly. Recommendations on shifts to communication strategies could happen almost overnight, for example, and tweaks to the understanding of the 2-3% inflation target can be done simply by agreement between the Governor and the Treasurer. Changes that require changing the Act, such as a Separate Monetary Policy Committee, should they be adopted, would be subject to legislative timelines.
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