The Albanese government is set to split the all-powerful board of the Reserve Bank of Australia (RBA), separating the setting of monetary policy and institutional governance functions of the central bank into two distinct boards to bring greater technical and operational expertise to its functions.
The recommendation, which the government has telegraphed well in advance, is contained in the 268-page report stemming from a review of the RBA initially flagged by former treasurer Josh Frydenberg but set in motion by current treasurer Jim Chalmers.
The separation of the RBA board is one of 14 core recommendations stemming from the review that constitutes one of the biggest shifts since the institution was officially separated from the government in 1983.
“The Reserve Bank board’s composition and decision-making processes have not sufficiently enabled it to shape policy decisions, strategy and the RBA’s underlying analysis and judgements,” the review said.
“The government should form a Monetary Policy Board with greater economic expertise and participation in decision-making while maintaining diverse perspectives and knowledge.”
The review suggests the government should legislate changes to commence from July 1 next year.
The RBA said it welcomes the recommendations.
“The bank will work constructively to ensure that this and the other recommended changes to the Reserve Bank Act strengthen the bank and the way it operates,” it said in a statement.
“It will also work with the treasurer on an updated statement on the conduct of monetary policy.”
The RBA board and its governor, Philip Lowe, have been the subject of trenchant criticism over the past year in the wake of 10 successive interest rate rises meted out in an effort to control inflation that has slammed household incomes as various parts of the economy and consumer sentiment oscillate sharply.
So far, the Albanese government and the opposition have signalled they will take on most if not all of the much-anticipated report, dubbed ‘An RBA fit for the future’, including the separation of monetary functions that broadly reflect existing central bank models in the UK and Canada.
The core of the report deals with bolstering technical monetary policy and economic expertise by essentially hiving off that function to experts.
However, unions are pushing hard for representation on the RBA so it can better take into account the plight of workers, their wages and conditions which the industrial movement believes have been sweated too hard after a decade of Coalition governments in Canberra and NSW.
The RBA review team is comprised of an external set of eyes: Carolyn Wilkins, who spent 20 years at the Bank of Canada, Professor Renee Fry-McKibbin from the Australian National University and Gordon de Brouwer, the current secretary for public service reform and a former Treasury wonk.
It is de Brouwer’s recommendations and influence that will be most closely watched by the APS and other governments because the RBA remains a mid-sized transactional bank that primarily provides services to the commonwealth (printing cash, processing government payments and generally acting as the government’s bank) as well as controlling and regulating the payments system through the Payment Systems Board (PSB).
Notably, the PSB was not in scope for the current RBA review.
With the RBA currently sporting around 1,400 staff, the separation of its functions could potentially increase headcount in the event Labor seeks to grow the RBA’s operational functions to become a form of government fintech in-sourcer, a role it already plays to a degree by virtue of distributing pension and welfare payments and sitting consolidated revenue.
There is also a clear desire from the government and other parts of the financial services industry for the RBA, Treasury and the Australian Bureau of Statistics to get better economic data faster to inform economic and monetary policy decisions.
Chalmers also announced today that former Fair Work Commission president Iain Ross and experienced non-executive company director Elana Rubin would join the RBA board this year.
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