The Reserve Bank of Australia (RBA) is set to face a major overhaul, including the establishment of separate boards for monetary policy and bank governance, after a government review was published on Thursday.
Released by Australian Treasurer Jim Chalmers, the review proposed 51 recommendations to deliver “an RBA that is fit for the future.” One of the major changes recommended by the Review Panel is to constitute a monetary policy board with greater economic expertise.
According to the review, the board should be responsible for monetary policy decisions and oversight of the RBA’s contribution to financial system stability (except payments system policy), but not broader corporate governance.
Speaking at a media conference here on Thursday, RBA Governor Philip Lowe welcomed conclusions of the review, saying that the review has been timely, with the bank facing an increasingly complex world and operating environment.
“From a number of perspectives, current oversight arrangements fall short of contemporary standards. The proposed changes would address this and help the governor manage the bank and its many functions,” said Lowe.
The governor noted that the recommended changes could also strengthen the monetary policy process, by having a board whose sole focus is monetary policy.
“I very much welcome the conclusion that this board should include people with diverse perspectives and knowledge and who have experience in decision-making under uncertainty. It is also pleasing to see that the panel recommended that the Treasury Secretary remain on the Board,” he said.
As the establishment of these two boards will require changes to Australia’s Reserve Bank Act 1959, Lowe added that the bank will work constructively with the government and parliament to ensure that any changes to legislation are effective in achieving their objectives.
According to the Reserve Bank Act, the RBA currently has two boards, namely the Reserve Bank Board and the Payments System Board.
The Reserve Bank Board has the power to determine the policy of the bank in relation to any matter, other than its payments system policy.
It comprises nine members, namely three ex-officio members, namely the governor, the deputy governor, and the secretary to the Treasury, and six non-executive members, who are appointed by the Treasurer.
An opinion from Australian Financial Review flagged the dilution of the governor’s powers on interest rates and the bank’s governance as a major upshot of the first independent review of the RBA.
“More experts setting interest rates, board members speaking publicly and signing off jointly with the governor on RBA statements, and the disclosure of how members vote each meeting, albeit unattributed, will herald a new power-sharing era,” the opinion wrote.
