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Economics update | 21 April 2023
21 Apr 2023
Review recommends major overhaul of the Reserve Bank
This week the government released the long-awaited review of the Reserve Bank. It is the bank’s first external review since it was given formal independence and responsibility for inflation targeting in the early 1990s.
Importantly, the review supports maintaining the independence of the Reserve Bank, as well as the flexible inflation targeting framework focused on keeping inflation with the 2 to 3 per cent range.
The most significant change will involve the creation of dual board model, similar to the Bank of England and Bank of Canada. The monetary policy board will focus on setting interest rates and is expected to include experts on economics, labour markets and financial markets, while the governance board would oversee the bank’s operations such as human resources, finance, risk management and technology.
Overall, the review identified four ways the governance, monetary policy framework, culture and systems of the RBA should be reinforced:
- The monetary policy framework is fundamentally sound, but should be more clearly defined and subject to regular reviews and updates
- Monetary policy decision making should be strengthened, drawing on more expertise and with processes that promote deeper contestability of ideas
- The RBA should become more open and dynamic, through new internal structures and approaches
- The RBA’s corporate governance should be strengthened, with contemporary governance structures that better manage risk and drive change
Treasurer Jim Chalmers indicated in-principle support for all of the 51 recommendations. The Coalition has also indicated support for the recommendations, which should ensure smooth passage of any legislative changes through the Parliament.
The full report of the Reserve Bank Review can be found here.
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