The Reserve Bank of Australia is about to get the largest shake-up in its 60-year history.
The review of the central bank by international policy experts, published on Thursday, comes with 51 recommendations to overhaul how the bank makes its interest rate decisions, its accountability for those monetary policy calls and a complete refresh of its culture.
The Reserve Bank is expected to start working on those changes immediately and the reviewers recommended a tight one-year turnaround for legislative change – calling for these reforms to come into effect by the middle of next year.
Fewer board meetings
Households with mortgages will get more breathing room between interest rate decisions through a recommendation to move to eight monetary policy board meetings a year instead of 11.
The Reserve Bank board currently meets on the first Tuesday of every month, bar January. The change would mean the board meets roughly every six weeks instead.
The review was critical of the amount of information the board members receive when deliberating rate rises, so it also wants those members to have greater opportunities to speak with bank staff and review information that would help them come to decisions between meetings.
The governor should front press conferences after every interest rate decision and board members should deliver speeches more often, as the review recommends the bank explain its decisions to the public.
The bank should also publish more of the data and research it uses to underpin those decisions.
While the reviewers believe the bank should keep its current 2-3 per cent target for inflation, it said the bank should also explain itself if inflation is expected to remain outside that target range for a length of time, so people understand why inflation is high (or too low) and what the bank is planning to do about it.
Board members should also have more freedom to comment on fiscal policy, which is set by the government.
One board for interest rates, another to run the bank
Currently, there is one board that oversees the running of the bank and also controls monetary policy decisions.
The reviewers want a monetary policy board, comprised of specialists, that focuses on the country’s financial stability and macroeconomic conditions. That board will have the power to change interest rates to help its goals of keeping inflation under control while maintaining high employment in the country.
A separate governance board will focus on the running of the bank, which reviewers said also needs a complete overhaul.
More experts deciding interest rates
The review was critical of the fact the Reserve Bank board does not have the skills or expertise to adequately challenge the views of the bank’s executive – the Governor and Deputy Governor – when it comes to interest rate decisions.
The new monetary policy board should include experts in labour markets, open-economy macroeconomics and the financial system. They should have the knowledge to challenge each other’s views and make significant contributions to board decisions.
“Combining the judgement of a group of people with deep and relevant expertise provides the best chance of achieving good outcomes,” the review said.
Those board members should be selected through job applications and interviews, rather than by appointment.
Cultural overhaul within the bank
Better management training, more external hires, and generally being more “open and dynamic” are important changes the reviewers recommended, to encourage more diverse views and allow for constructive challenges.
The bank needs to empower staff, provide mandatory leadership training for all leaders, improve performance feedback and career development and be more transparent about internal job opportunities.
These changes will help foster a culture where debate is encouraged, allowing staff to constructively challenge the views of manager sand senior leaders.
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