Reserve Bank board members responsible for crucial interest rate decisions that affect inflation, employment and mortgage repayments have not been up to the critical task, the review of the central bank found.
However, RBA governor Philip Lowe challenged that perspective, saying the idea that board members simply accept the views the bank puts to them did not resonate with him.
In the largest review of the RBA in its more than 60-year history, the independent panel was scathing of the board’s operations – from the expertise and skill of its members, to the information provided to them to help with its decisions, and how it communicated those choices.
“Currently, the Reserve Bank Board provides only limited challenge to the RBA executive’s view and its skill set is not matched to the complex and uncertain economic environment in which monetary policy will increasingly operate,” the review said.
It noted the board members who are not from the RBA or Treasury have been “outstanding leaders” in their fields, but have had less economic and financial market expertise than their international counterparts.
Another major issue was that the board’s current processes do not provide members with enough information, support or time to explore different policy options, or to challenge the bank’s views, which are provided by the RBA governor and deputy governor.
“Moreover, on some occasions, the board has not requested or been given information relevant to its decisions or has not been fully involved in significant policy decisions,” the review said.
“In these areas, the way monetary policy operates in Australia falls short of best practice for central banks.”
The review recommended sweeping changes to address those issues, including having two boards dedicated separately to monetary policy and bank governance, and hiring board members through an advertised process with expertise in areas including labour markets and macroeconomics.
A lack of transparency and accountability around board decisions was another issue highlighted in the review. It recommended publishing the board’s votes without names, and for the governor to hold press conferences after every board meeting.
It also said board members should be allowed to speak publicly at least once a year. Currently, board members are not permitted to speak about their deliberations on monetary policy.
Defending the board at the bank’s headquarters in Sydney, Lowe hit back at those criticisms, saying the review’s description of the board process and its meetings did not resonate with him.
“In the boardroom, right next door, what I see are nine people who are deeply engaged in questions that bring a great deal of expertise to the issues we’re dealing with. They’re probing, they challenge me, and sometimes I speak last in the meeting,” he said on Thursday.
“So the idea that the board members sit there meekly and accept the recommendations that are put to them is very far from the reality that I’ve lived as the governor. So that part of the review discussion didn’t really resonate with me. ”
Lowe said the review panel “did not sit in the boardroom”, but they did speak to dozens of people including current and former governors and past and present board members and staff through the six-month review process.
Lowe said he did understand why the reviewers called for people with more monetary policy and financial expertise on the board.
The RBA governor also warned there could be too much communication, pointing to the fact he already regularly gives speeches, appears before the parliamentary economics committee and addresses the National Press Club annually.
“We can communicate too little, but you can also communicate too much,” he said.
“I’ve been very conscious of this being the governor, I give a public speech once a month, and more than that is probably too much.”
In the first changes to the board, Treasurer Jim Chalmers appointed the former chair of AustralianSuper Elana Rubin, and Iain Ross, a former president of the Fair Work Commission and vice president of the Australian Industrial Relations Commission, as part-time board members, replacing Wendy Craik and Mark Barnaba whose terms end this year.
Secretary of the Australian Council of Trade Unions Sally McManus said unions have long been concerned the board was not diverse enough.
“You need to ensure that you’ve got a good diversity of skills mix and clearly one of the things that was missing is an updated understanding about how the labour market works,” she said in an interview on Sky News.
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